The road of excess leads to the palace of wisdom. - Wm. Blake

Wednesday, May 25, 2005

By Jove, I think he's got it!

Normally, I view Steve Landsburg of Slate as a fool, prone to the worst sorts of Econ 101 Just So stories. Even as I clicked on his latest, I kicked myself for the waste of time I was surely embarking on. When he informed us that, "By way of full disclosure, I am uniquely unqualified to address this question [about the relative merits of vine-on and vineless tomatoes], having never (to my knowledge) tasted a tomato. No, it's not that I'm allergic (how would I know?); I just don't like them. I happen to have been born with this knowledge, so there's never been any need to put it to the test," my eyes began little warm-up exercises, preparing to roll vigorously.

The subsequent, telling, revelation, that he and his colleagues have a 20 year track record of falsely predicting the failure of local businesses was good for a couple revolutions. But then I got to the conclusion, and, lo and behold, I realized that he was answering a question that I was pondering as I walked the dog this very morning. What were the odds that Landsburg, of all people, would satisfy my intellectual curiosity?

To wit: I bought some prosciutto this weekend - 6 paper-thin slices. Can't have weighed anything, and even at $20/lb, I doubt it cost more than a buck or two. Yet I hadn't even used a quarter of it to wrap melons for four of us - that's how flavorful it is, how far a little bit can go. So I was pondering this, wondering whether the price reflected the only way to make money on something that people buy in such small quantities, whether it is simply a luxury good, and the price reflects what people will pay for a luxury, or whether it was regular old production costs, and it simply works out that it's affordable at high unit cost, because you don't need much. And here's Landsburg's answer:
There are only two ways a single good can sell for two different prices. Either a monopolist is manipulating the market (unlikely in the case of tomatoes), or the price difference reflects a real difference in costs.[For the purposes of this discussion, I'm thinking of prosciutto as, basically, a "single good" with lesser hams]

Some might argue that prosciutto is not comparable to mere ham, or that prosciutto di parma is, in fact, a monopoly product, but that misses the point, which is that, if it were possible to make prosciutto as cheaply as Isaly's chipped-chopped ham, someone, somewhere would, and people would eat more of it. But they can't, so they don't. QED.


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