Comments on: Unwholesome Antitrust

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By: shawn

shawn — Wed, 11 Jul 2007 18:22:28 +0000

…thanks a lot for the input and helping me understand this (a little) better.

By: Methinks

Methinks — Tue, 10 Jul 2007 11:31:54 +0000

Price elasticity of demand is the change is in the the quantity demanded given a change in price for a given product. So, % change in quantity demanded divided by % change in price for a given product.

The way I remember it, if the elasticity of demand (ED) is <1, demand is considered relatively inelastic. Obviously, the closer ED is to 0, the less elastic the demand. If the ED is greater than 1, then then demand is considered to be elastic and perfect elasticity does result in zero demand given any change in price, as Patrick said.

By: Methinks

Methinks — Tue, 10 Jul 2007 11:11:10 +0000

I was hoping Don or Russell would write a response to this twisted thinking.

Leave it to a former regulator to assume that he is the only one able to see "nuances" in a market and that those "nuances" require his intervention. What a crock.

By: patrick

patrick — Tue, 10 Jul 2007 11:02:58 +0000

Shawn, it's just econospeak. When we say "price-elasticity" it is generally referring to the price elasticity of demand. So if price were to rise 1 percent, what percent will quantity demanded fall. You could also talk about the price elasticity of supply, so if the price were to rise 1 percent, what percent will the amount folks are willing to supply at that price rise.

I always mixup inelastic and perfectly elastic: Im pretty sure that demand is very inelastic if price changes have little effect on the quantity demanded and perfectly elastic means that a tiny rise in prices causes all demand to evaporate (as might happen if there is a perfect substitute).

Hope that helps.

By: Matt

Matt — Mon, 09 Jul 2007 09:01:55 +0000

Financial markets have deprived me of the capital I need to do whatever I want, whenever I want, for however long I want. Damn!

By: shawn

shawn — Mon, 09 Jul 2007 08:12:23 +0000

so…then…my wife, who buys the hippie milk? Thanks, Tom, I appreciate the explanation.

So, the 'elasticity' is the amount of response to changes in price.

Essentially, then, would 'price inelasticity' be the same as/could it also be called 'demand inelasticity'? I'm trying to think of 'supply inelasticity', but I can't think of any instances other than maybe government services…and I'm not convinced that that's a good example.

By: Tom D.

Tom D. — Mon, 09 Jul 2007 06:57:16 +0000

Price inelastic means that shoppers will consume the same amount of WF organic milk under a "monopoly price" of $8.29/gallon as they would under the "competitive price" of $4.29. In that case, the monoply rent to WF is $4.00/gallon.

By: shawn

shawn — Sun, 08 Jul 2007 17:56:54 +0000

...I'd like to display my ignorance here. Hello, I'm ignorant.

What does 'price inelasticity' mean, specifically here? That the WF shoppers would pay virtually anything that it says on the price tag? If so, why does that make them 'deserve' to pay 'monopoly rents'? Because they're too stupid to shop elsewhere? (and...I'm still trying to figure out 'rents' as a concept...listened to the Munger/Rent-Seeking podcast, and it didn't really clear it up).

Thanks for any explanation.

By: Aschkan

Aschkan — Sat, 07 Jul 2007 23:57:52 +0000

Am I the only one that finds a certain irony in the whole Whole Foods, Wild Oats fiasco? While I'm certainly for the merger going through from a finance standpoint, I find myself rooting for it to fail if only because the prime benefactors of the merger, namely the organic tofu-turkey set, tend to be anti-capitalist and anti-merger. Moreover, if organic consumers are so price inelastic towards organic groceries that Whole Foods could exert any real pricing pressure, they damn well deserve to pay monopoly rents.

The only thing more ironic would be if a private equity group snapped up Wild Oats.

By: lowcountryjoe

lowcountryjoe — Sat, 07 Jul 2007 21:50:45 +0000

The blunt words of industry experts, such as the CEO of Whole Foods, helps illuminate the market realities. Therefore, the FTC relies, in part, on those words. But understanding markets is ultimately complex, imprecise and expensive. It may be preferable to eliminate the antitrust laws, but absent that we should not substitute simplicity for reality. ~ Arnie Celnicker, Arlington, Va. (The author was formerly employed as an attorney for the FTC and the Antitrust Division of the Justice Department.)

Could it be that Dreamboat Arnie prefers that these matters stay complex, imprecise and expensive so that his friends can enjoy their ultra secure bureaucratic jobs? Or was Arnie's tenure cut short precisely because these complex matters were a little to daunting and challenging for him to comprehend.

Sorry to be so straight forward but I'll skip any nuance so that nothing is misinterpreted.

By: Adam

Adam — Sat, 07 Jul 2007 19:03:12 +0000

Basically, the argument is that no one except Whole Foods wants to invest in Wild Oats. Therefore, Whole Foods should be prevented from investing in Wild Oats.

Talk about a non-sequitur.

By: Tim Worstall

Tim Worstall — Sat, 07 Jul 2007 09:43:33 +0000

"Among these is the fact that "financial markets have deprived Wild Oats of the capital"

An absurd statement in and of itself. Didn't the writer note that there's someone right there willing to pump capital into Wild Oats?

Called the Whole Foods Company.

By: Jon

Jon — Sat, 07 Jul 2007 09:17:44 +0000

Bravo!

I've truly come to believe that "anti-trust" and "monopoly" are simply the new buzzwords of the anti-capitalism movement of the 21st century.

Strangely this echoes Hayek's bit in The Road to Serfdom about socialist aspects of society arguing that monopoly is inevitable and if we must have one it should be responsible to "the people."

How haunting and disconcerting.