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Showing posts from October, 2019

It's Smart and It's a Watch. Is It Though?

It is sometimes interesting to consider how products are named. Pepsi was invented by a doctor who found the name for his soda within the word "dyspepsia," the medical term for indigestion. Maybe that is why doctors rarely run marketing departments. Naming a beverage after an illness is not typical of brand campaign whiteboarding sessions.

In any event, we now have a product line called "smart watches." It has a nice ring to it. You are smart because you wear it, it seems to say. Or the product is smart and who doesn't want to buy some smart and strap it on their arm? But from an economics perspective the term "smart watch" is pretty misleading.


There are a variety of circumstances where defining the boundaries of a market is very important. Companies will want to know who they compete with in their market. Government regulators often need to identify markets geographically or by product characteristics in order to determine if a merger cou…

Will CPAP Cure that Lemons Problem?

To most people CPAP stands for Continuous Positive Airway Pressure, a medical device which assists those diagnosed with sleep apnea. Am I suggesting that lemons could benefit from CPAP treatment? No. I'll explain.

One of the most important insights in economics comes from an economist and Nobel laureate named George Akerloff. His most famous paper dealt with a situation where consumers do not have perfect information about a product before they purchase it.
Akerloff's insight is that imperfect information could actually result in an outcome where prices are very low and only the lowest quality version of a product is available.

 Akerloff motivated his seminal paper on this topic with an example drawn from the used car industry. Suppose there are only two types of used cars: cherries which are perfect and worth $10,000 and lemons which are only worth $2,000. Suppose that there are equal numbers of cherries and lemons but there is absolutely no way for a buyer to determin…