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The reverse effect works too. When an overhead cost drops, people consume crappier versions. Free online news is a striking example. If you walked down to the news stand and paid $0.75 for a physical newspaper and the content was all Clickhole listicles you'd never buy it again. But people consume plenty for free.
> the Alchian–Allen theorem Uhm, I'm not an economist but how is this a "theorem"? What is the theory, what are the axioms, where is the proof? This seems like an empirically observed trend.
there is some basic arithmetic in the article. imagine the cost was raised by $100, then prices of beans would be $101.5 and $103, i.e. pretty much everyone would go for higher quality. gradually decrease the premium, and you will gradually decrease the number of people who prefer the higher grade product in favor of lower price. this is pretty much it. quite simple and neat observation, actually. "the harder the pun…
Did you read my comment? That's exactly what I wrote. This is not a "theorem". Theorems live inside theories, they're logically implied by axioms of the theories. That basic arithmetic proves nothing of the sort.
Earlier quoted context omitted.
there is some basic arithmetic in the article. imagine the cost was raised by $100, then prices of beans would be $101.5 and $103, i.e. pretty much everyone would go for higher quality. gradually decrease the premium, and you will gradually decrease the number of people who prefer the higher grade product in favor of lower price. this is pretty much it. quite simple and neat observation, actually. "the harder the pun…
> quite simple and neat observation, actually. Did you read my comment? That's exactly what I wrote. This is not a "theorem". Theorems live inside theories, they're logically implied by axioms of the theories. That basic arithmetic proves nothing of the sort.
axioms: * given same price, consumer goes for higher grade product. * as relative price difference decreases, some consumers start going for higher grade product. * rules of arithmetic.
in any case, it seems that we have appreciation for different things. you prefer detailed verbosity, i prefer a simple idea that can be easily understood.
great and profound ideas are not necessarily complex, many of them are quite simple. let's keep them that way.
> the Alchian–Allen theorem Uhm, I'm not an economist but how is this a "theorem"? What is the theory, what are the axioms, where is the proof? This seems like an empirically observed trend.
[0] https://mpra.ub.uni-muenchen.de/901/1/MPRA_paper_901.pdf
Similar to an even exchange in chess. If you’re behind it’s a good deal, if you’re ahead it’s bad. Of course evaluating value taking into account positions (and thus determining whether an exchange is really “even”) is not straightforward.
Let's say your "strength" is simply the sum of the value of your pieces. The losing side has a strength of l and the winning side has a strength of L.
The losing side loses by l-L in absolute terms, or (l-L)/(l+L) in relative terms.
An even exchange of value k makes it go to (l-k)-(L-k) = l-k in absolute terms (no change); and to (l-L)/(l+L-2k) in relative terms. (l-L)/(l+L-2k) To take an example, if the situation is white : two pawns and black: one pawn, going to white: one pawn and black: nothing is a bad deal for black (the losing side)!
Similar to an even exchange in chess. If you’re behind it’s a good deal, if you’re ahead it’s bad. Of course evaluating value taking into account positions (and thus determining whether an exchange is really “even”) is not straightforward.
Am I missing some reason why it would be the opposite?
As a person who loves Belgian beer, I came to this realization when I was on a bit of a beercation there. For the most part, the good Belgian beer makes it here. When I'd try beer from breweries I hadn't heard of while I was there, it was mostly worse than the Belgian beer I had tried at home.
Today: Gold $10; Silver $0.10
Tomorrow: Gold $1010; Silver $1000.10
By adding a constant to both prices, the price ratio no longer remains aligned with the underlying value ratio. Assuming you have to get one necklace each day, there is less of a decision tomorrow than there is today, because silver is overpriced relative to gold. The correct prices for tomorrow should have been "Gold: $1010, Silver: $10.10", so you're effectively getting more scammed by going with silver.
I thought this was just common sense. Suppose you're buying necklaces. Today: Gold $10; Silver $0.10 Tomorrow: Gold $1010; Silver $1000.10 By adding a constant to both prices, the price ratio no longer remains aligned with the underlying value ratio. Assuming you have to get one necklace each day, there is less of a decision tomorrow than there is today, because silver is overpriced relative to gold. The correct pric…