Markets in Everything
Megan McArdle has two excellent posts this morning that, while seemingly unrelated, aren’t. First, she wonders “Why Doesn’t the Market Produce Non-Smoking Bars?”
This seems like a market failure. You can explain it through preference asymmetry and the profitability of various customer classes: heavy drinkers are more likely to also be heavy smokers, and they are the most profitable customers. Bar owners don’t want big groups of people who are going to take up three tables for an hour and a half while nursing one white wine spritzer apiece. They want people who are there to drink. In a competitive equilibrium, they couldn’t afford to go non-smoking because they’d lose their most profitable customers to all the other bars.
Second, answering a blogospheric hue and cry from the weekend, she examines why cable news largely ignored the Iranian election controversy.
The cable networks are hamstrung by the fact that they don’t have much footage of what’s going on in Iran. As I watch, they’re showing a combination of shots of peaceful protests in Western countries, lying propaganda footage from Iran’s state television system, and random b-roll of unidentified protests in some unidentified country that does not seem to be Iran. This is less than must-see-TV.
In both cases, arguably, the market produced bad results for good, understandable reasons.
The vast majority of people would prefer that bars be smoke-free, for reasons of both health and aesthetics. Bar owners nonetheless won’t ban smoking on their own, because smokers are excellent bar customers and, in their estimation, won’t drive away more business than they bring in.
Now, this doesn’t explain why more bars catering to the majority non-smokers didn’t open spontaneously. Even if it’s true that, in the aggregate, smokers consume a disproportionate amount of bar drinks, it doesn’t follow that there aren’t plenty of non-smoking individuals who are also serious drinkers and would appreciate the opportunity to spend $10 on two additional beers or an additional scotch rather than on dry cleaning cigarette stench from their suits.
The second case is harder still. The owners of the cable news networks have apparently decided that people would rather hear chit-chat than see hard core reporting of foreign news. Or, at least, the appetite for foreign news day in day out is not bringing in enough money to cover the enormous expensive of adequately staffing foreign bureaus. And, absent having made that investment ahead of time, there’s no way to ramp up to provide serious coverage of breaking events people are interested for non-sustained events.
When I was first watching the network newscasts with interest, the Big 3 all had huge overseas bureaus. ABC News had three anchors briefly, with Peter Jennings reporting from the Moscow desk. Now, the best they can do is buy Christine Amanpour plane tickets and figuratively parachute her to various locales to give the appearance of doing real reporting.
While I realize that the plural of anecdote isn’t data, I would note that a lot of professional bartending friends of mine reported substantial lost wages after smoking bans were enacted in this area because, simply, “smokers tip better.” Smokers tended to drink more and smoke less, and the general rule around here is to tip $1 to $2 per drink, but only about 15-20% for food. Non-smokers tend to eat more, drink less, and stay longer without ordering extra drinks versus non-smokers. Thus, lower tips overall, even if the tabs are bigger.
So a lot of my friends have moved on to other professions–such as waiting at higher-end restaurants–in order to get back to their old salaries. Of course, in the meantime, the quality of bar waitstaff in this area has plummeted to the point that I’ve stopped going to bars, as the low tip expectations have effectively priced out quality service.
That’s an interesting observation, Alex.
From what I’ve gathered, bar owners in NYC and elsewhere have not seen the expected drop-off in business after the smoking bans went into effect. But I haven’t seen any data on tipping and the impact on bartenders.
My tipping behavior at bars depends almost entirely on whether I’ve started a tab. If I have, I tend to tip the 20 percent that I would at a restaurant, upping it substantially if it’s a small bill. If I’m paying per drink, though, I tend to either tip heavily the first time and lightly thereafter or do something like a buck a drink.
I have a half-assed theory about the media equation.
1) A number of newspeople consider bringing news from around the world their civic duty to their readers and viewers. Therefore, in an ideal world with infinite money, they would have their employers open bureaus in all of the world’s major cities so as to provide comprehensive news to their consumers.
2) That ideal world existed, after a fashion, for a large portion of the twentieth century. Because they held a monopoly on the to reach consumers, media executives had a great deal of leverage when it came to setting the ad rates that finance production of the newsgathering product.
3) Over time, that ideal world eroded, in large part because of a proliferation of alternate media, including the cable news channels and the Internet.
4) With that, advertising money no longer flowed as freely. In order to continue operations, media outlets had to evaluate what news their consumers most wanted. That generally amounted to local and national news, and not as much world news. The logical decision was to close foreign bureaus.
5) Demand for world news still exists, but it it inconsistent. When you see a major event such as a war, a revolution, or a natural disaster, demand for world news increases sharply.
6) However, these occasional spikes in demand do not justify permanent (or even semi-permanent) news bureaus. Erego, the media outlets are unable to produce original footage of many world news events.
7) Ironically, this lack of footage and reporting decreases individual outlets’ perceived value in the marketplace.
My realization, after my digital/HD cable upgrade, is that my cable service provider is trying very hard to provide a base package that looks good on paper, but that quickly bores me, and makes me desire premium services.
Now, I’m sure the cable channels are still looking for market share … but I think there are some weird dynamics here.
I was very happy with HD-Net’s HD news, and the Dan Rather hosted HD show. Both spent 20 minutes on stories and went pretty deep. They went understandibly for stories that were also very visual … but it was a good trade-off. My cable company dropped HD-Net and put in some much more boring fare.
All in all, with insufficient competition (a should-be-illegal local monopoly), there are trying to give us good looking “tiers” with as little as possible.
Note: If the established interests don’t block it, internet delivery could break the channel/provider bottleneck in 5-10 years, and those in-depth shows would be there for those who wanted them. (The natural growth path beyond YouTube and Hulu.)
I know some conservatives think that the non-neutral net is more “free market” but note as I said that “providers” may only force non-neutrality on us because they’ve already been granted that legislated (and not natural) local monopoly.
The studies I’ve read seem to indicate that revenue is flat or slightly up after bans go into effect, but that margins are down because the margins are higher on alcohol than they are on food. That’s got some longer term impacts, I think. Especially since now people are tending to eat out less, revenues for food are slowing down overall, too, but that has a disproportionate impact because smoking ban areas have already taken a margin hit because of the alcohol for food swap.
Interesting re smoking bans and your assertion about the vast majority of folks, etc. Head over to the Volokh Conspiracy and see Jonathan Adler, June 15, 2009 at 11:22am for an interesting dicussion of smoking bans. Jonathan quotes Henry Farrell from Crooked Timber on smoking bans in Ireland:
Why? Because, Henry opines:
The “prevailing norm” he refers to, he explains, is “that Irish people can smoke in pubs to their hearts’ content, and that others will just have to put up with it.” Evidently, not. Ditto, Italy.
Both you and Megan made this assertion and I to prefer a smoke-free or low smoke bar myself, but the reality is apparently that most regular bar patrons don’t put smoke-free high on their list when selecting a bar. People choose their watering hole not for the alcohol but the company and apparently smokers are good company. In the mid-nineties, where I lived in Seattle there was a smoke-free pub one half a block away and one with smokers and poor ventilation 3 blocks away. The smoke-free pub really wasn’t welcoming, staff and customers struck me as liberal snooty types and was rarely full. The other, was packed and outside the smoked condition when you left, very enjoyable, although less cerebral and with lots of bitter clingy types. I walked further and showered after going out because the smokey bar was a more pleasant place to be even with a cloud in the air.
Given the lack of smoke-free bars flourishing by choice and the reduction in business after smoking bans, it appears the most people prefer smoke-free bars is more most people prefer bars be smoke-free just in case they sometime in the future might want to go there. You can’t make a living depending on people who might stop by once or twice a year.
If it’s anecdote time, my wife just held a bridal shower here in Michigan (no smoking ban yet) for a group of friends from states with bans (California & New York). The out-of-staters were actually quite annoyed with the smoke as they haven’t experienced it in years. They ended up leaving rather early and spending more time at home.