Now, Redbox has raised prices too (news story from Marketplace.org). How do you think consumers will respond? What other options do they have, legally (i.e. not downloading torrents/P2P), Amazon, iTunes, Zune/Xbox, cable TV, Satellite (Dish network), SwissCom, T-Com, StarHub or SingTel?Consider which factors increase the price elasticity of Netflix while at the same time decreasing the price elasticity of Redbox making it more price inelastic allowing the company to successfully raise prices.
How is Redbox, Netflix, and the NBA related? (click read more below)
 |
| photo by Adam Pieniazek |
Consider that the first month of the NBA season has been canceled due to NBA players and owners in a labor and revenue sharing dispute. If you guessed that the relationship was the price of tickets or food and beverages at NBA games then you'd be right. However, the kind of pricing that I was thinking of is related is the price of labor, specifically, NBA players. University of Chicago economist, Kevin Murphy, works with the NBA Players Union to help them negotiate their labor contract. Here is his interview with NBA.com. If you think that the NBA players already make too much money or control too much of the share of revenue (approximately 57% of current revenue goes to the players with a likely decrease to 50% or less with the new labor deal) consider that other service industries such as lawyers who often command 80% or more of their revenue.Do you agree, disagree, think I'm crazy? Let me know by posting below.
Hello Mr. Fitts,
ReplyDeleteThis is Oriol from Economics PM. I think you're crazy in attempting to relate NBA to Redbox and Netflix. First of all, there is no competing entity that relates to NBA the way that Redbox and Netflix relate to each other; therefore the effect of price elasticity being raised for one while decreasing for the other does not exist. Also, Redbox and Netflix deal with video rental and general viewing of movies. Where is this element in the NBA? Additionally, the equilibrium of the market concerning the giffen good movies strike me as not fulfilling the third condition of ceteris paribus where the veblenized form of the PPC curve intersects with...
Just joking Mr. Fitts. I think that what you said makes sense. I was not aware that lawyers command more than 80% of their revenue. That is indeed a large portion, although I take it you would have to be a very expensive lawyer for your income to beat that of a NBA player, even if a NBA player's percentage is 57. In the end I guess it all comes down to what we discussed on one of the first lessons this year ('Why are adult men and women paid salaries totaling millions of dollars to play games?').