Dear Economist; REALLY dear

A truly shocking notion: If your numbers are shrinking from one of your two revenue sources, raise prices for the other revenue source.

Not so shocking perhaps, but we’re talking about the magazine industry. A lot of magazines have been charging subscribers far less per issue than a Starbucks anything, and lowering that price in the hope of getting more subscribers and thus, in theory, higher advertising revenues.

Fast forward: Depression → Ads go poof. So what to do?

They’re suddenly paying attention to … us. As this piece says,

The Economist is leading the charge on expensive subscriptions, and its success is one reason publishers are rethinking their approaches. It is a news magazine with an extraordinarily high cover price – raised to $6.99 late last year – and subscription price, about $100 a year on average. Even though The Economist is relatively expensive, its circulation has increased sharply in the last four years. Subscriptions are up 60 percent since 2004, and newsstand sales have risen 50 percent, according to the audit bureau.

Will it work for others?

Let me tell you how I buy wines.

In normal circumstances, economists talk about something called the price elasticity of demand, because when something gets more expensive, people tend to buy less of of it. But there is a quirky exception. The demand for certain things has an inverse price elasticity. As the price goes up, you buy more of it.

This explains why I, occasionally capable of rationality, have nonetheless found myself reaching for the more expensive of two otherwise indistinguishable bottles of Napa Cabernet Sauvignon. It must be …. better. How do I know? I don’t. The price led (fooled?) me into thinking it.

But: For this to work, the product must be something that is not fungible and that I value intrinsically. Having bad wine at my age is worse than no wine. Ditto my reading time: Reading crap is worse than not reading at all. By contrast, I would not reach for the more expensive of two otherwise indistinguishable rolls of toilet paper.

We may soon find out how the reading public views its news magazines.

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2 thoughts on “Dear Economist; REALLY dear

  1. Couldn’t resist a comment on this serendipping convergence of sutra (punning, rational economics, price and human psychology)

    Firstly nice polysemic pun from NY “leading the charge”.

    Secondly – re subjectivity and wine – great piece on this at
    From Jonah Lehrers’ blog (also from his first great book “Proust was a Neuroscientist”)

    “The second test Brochet [University of Bordeaux] conducted was even more damning. He took a middling Bordeaux and served it in two different bottles. One bottle was a fancy grand-cru. The other bottle was an ordinary vin du table. Despite the fact that they were actually being served the exact same wine, the experts gave the differently labeled bottles nearly opposite ratings. The grand cru was “agreeable, woody, complex, balanced and rounded,” while the vin du table was “weak, short, light, flat and faulty”. Forty experts said the wine with the fancy label was worth drinking, while only 12 said the cheap wine was.”
    “What these experiments neatly demonstrate is that …. When we taste a wine, we aren’t simply tasting the wine.”

    Ah – the joys of scientific data that confound our ill founded self image as rational maximizers.

    • That’s funny. Also reminds me of another experiment I once heard about: People went into upmarket galleries and museums and struck up conversations about abstract art on display. In the course of it, they would drop phrases such as: “Very expressive, but not nearly with the power of a Zinovsky or Froll, don’t you think?” In a majority of cases, the conversation would take a few rounds on the relative merits of Zinovsky or Froll–names which the experimenters had invented on the spot–with both sides voicing strong opinions.

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