Just what you wanted for Christmas: a lecture on economics from a guy who claims to have no money.
My on-going rant about marathon prices caused two comments that have extremely common misconceptions about economics. Matt assumed that if a marathon had fewer runners, the price would have to go up, as there's an economy of scale. Keith assumed that races are fairly priced, as market competition would drive down costs.
There's no such thing as economy of scale!
If you throw a dinner party for four people, you invite them to your house and make the meal yourself. If you invite 400, you rent a hall and hire a caterer; the cost per person increases and the meal isn't as good. The only time most people have a dinner for a large crowd is a wedding reception and they figure the cost is acceptable, as it's once-in-a-lifetime. Most people who run a marathon consider it as a once-in-a-lifetime thing; those who want to run half a dozen every year have to subsidize them.
Even though the largest breweries produce millions of barrels of beer, one can make one's own more cheaply and it's better quality. Why don't huge breweries then make better beer? They have to deal with overhead, shipping, middlemen and taxes; they can't compete with a homebrewer. So why doesn't everyone just make their own beer and put the breweries out of business? First, there's time and work involved in making one's own and people are willing to pay a small price for effortless instant gratification. Second, most people are so used to bad beer that they find it acceptable or even preferable to homebrew.
There has never been an aconomy of scale in manufacture. In "Das Kapital," Marx went on endlessly about how the mechanization that cut a fraction of a cent from a box of nails created endless miseries for the workers, but he didn't point out that each price-cut also involved a decrease in quality. As long as the nail did it's job adequately, no one cared that it wasn't as good as what they had before. A nail from 200 years ago will last 1000 years, but no one needs one to last that long. The product isn't being made less expensively because it's being made in greater quantity; it's a different product.
Aren't electronics getting cheaper all the time? Most people buy a new phone, television and computer every 3-5 years and they pay more for each of them with each purchase, even adjusting for inflation. The argument is: "My new computer costs twice as much, but does 20 times as much as the old one; an equivalent to the old one would cost next to nothing now." BUT... you can't get an equivalent one! They don't make them! You are, in fact, paying more.
Smaller races cost less per person. Take shirts, for example. The first race in the MDRA Grand Prix is the Meet of the Miles. There's about 150 people, the cost is $5 and there's no shirt - no one expects one. The next race costs $25-33 plus $8 for a shirt, $10 for a technical tee, $15 for a long-sleeved technical tee; there's about 800 finishers (it once had 6000). The first marathon in the series has 5600 finishers, costs $80-100 and one gets a technical tee, plus a cinch bag, an aluminum bottle and, if one finishes, a medal. The bigger the race, the more people expect; the more they expect, the more they have to pay.
Competition does not lower prices!
Imagine that the three marathons closest to you charge $95, $110 and $125 and you decide to start a new, cheaper one. You crunch the numbers and find you could do it at $35 per runner. What would you charge? $90! You'd still be undercutting the others, but maximizing profit. You'd guarantee a profit even if the number of entrants is only a third of what you expect. As the entries start rolling in, you'd start thinking: I could upgrade the shirts... and people like to get a medal when they finish... You end up making exactly the same race for almost the same price.
Does the $125 race drop its price to compete with yours? No. They can't! If they did, everyone who ever did the race would feel they had been ripped off and they'd tell everyone they know about it. Instead, what they do is make an announcement like, "Our race is so popular that others are being created just to take our overflow. If you want to get into our race, be sure to get your entry in early or you might not get in and have to settle for a lesser race."
Then, if your race is a success, you start increasing the price, just because you can.
Fisher's Big Wheel
1 week ago