Tag Archives: life

A Wii Bit of an Error? Price Matching as Price Fixing

Yesterday, Sears made a wiiiiii bit of an error, selling a new Wii U for the bargain price of $60, a sharp markdown from the standard $300 price tag. People caught on and immediately bought as many as they could. That was smart. Sears eventually pulled it, though. So smarter people went one step further: they visited other retailers and bought $60 systems using price match guarantees, i.e., promises retailers make to sell like-goods at the lowest price of their competitors. Particularly crafty individuals allegedly went from Wal-Mart to Wal-Mart clearly out the storerooms.

This raised a moral question: is it right for consumers to take advantage of Sears’ mistake, manipulate the system, and trick (“trick”?) other retailers into also selling their products at a loss? Some people on Reddit felt that way:

I think I’d feel guilty doing that. But dang that’s a good deal.

Am I the only one who thinks it’s kinda [bad] to make another store pay for Sears error? You know it’s a error so why make it someone else’s problem?

Is there a difference between a legitimate offer / deal and taking advantage of a mistake? I’ll see you all in hell, which is where I’ll be down-voted into, where I can play Mario Kart with you thieving [lovely individuals].

I can certainly see their point. However, I don’t think that anyone should lose sleep for taking advantage of Target and friends for price matching. Why? Because one of the main reasons to create price match guarantees is to screw you over.

Wait, what? How can price matching possibly be bad for consumers? After all, it allows consumers to pay smaller prices. It could not possibly hurt consumers, could it?

Unfortunately, it can. Price matching is a form of price fixing, cleverly disguised as a nice gesture toward consumers. The key is how companies act in the bigger picture with price matching in place.

Imagine that you are a company and you have widgets to sell to consumers. You would like to charge your consumers a lot of money to pay for your widgets. However, there is a rival company that sells identical widgets. So if you charge a high price, all of the consumers will go to your rival, and you will make no money. Of course, your competitor has the exact same incentives. As such, you both end up charging very low prices. All of potential profit to be made from widgets has gone up in smoke.

In game theory, we call this situation a prisoner’s dilemma. Broadly speaking, this is a situation where both actors must individually choose whether to act kindly to the other (raise prices) or act uncooperatively (lower prices). Regardless of what the other side does, you have incentive to take the uncooperative action—this is because you can take all of the profits if the other side raises prices and still maintain parity in case they also lower theirs. However, the other side has the exact same incentives. So both of you take the uncooperative action even though this leaves you collectively worse off than if you both took the cooperative action.

If this is confusing, it might help to look at the problem visually:


Still with me? Okay. The point of the pricing prisoner’s dilemma is that it sucks up all of the revenue for widgets and leaves it in the pockets of consumers. This obviously makes those consumers very happy. But the companies would bend over backwards to figure out a way to collude to raise prices to monopoly levels. Yet successful collusion requires preventing the other side from undercutting one’s own price. After all, I don’t want to charge $10 for widgets if you are just going to screw me over by charging $9.

See where this is going yet? Price matching serves as this precise enforcement mechanism. Imagine that I announce that I will match any price you offer. I then charge $10 for my widgets. What are your incentives? Obviously, charging more than $10 is a bad idea, as I will take all of your business. So what if you undercut me instead? Well, you can’t. If you sell your product for $9, discerning customers have no reason to flock to your business because they can also get the widget for $9 from me thanks to my price match guarantee.

What to do? Well, you could also charge $10 and institute your own price match guarantee. For the same reasons as before, I don’t have incentive to undercut you either. We can both sustain the price of $10, well above what we would charging in a competitive environment.

So, despite appearances and Federal Trade Commission approval, price matching is a form of price fixing. It is intentionally designed to reduce competition and increase prices.

This makes the $60 Wii U price matching incident all the better: consumers used a policy designed to screw over consumers to screw over those who instituted the anti-competitive price fixing.

TL;DR: Karma.

Roger Craig’s Daily Double Strategy: Smart Play, Bad Luck

Jeopardy! is in the finals of its Battle of the Decades, with Brad Rutter, Ken Jennings, and Roger Craig squaring off. The players have ridiculous résumés. Brad is the all-time Jeopardy! king, having never lost to a human and racking up $3 million in the process. Ken has won more games than anyone else. And Roger has the single-day earnings record.

That sets the scene for the middle of Double Jeopardy. Roger had accumulated a modest lead through the course of play and hit a Daily Double. He then made the riskiest play possible–he wagered everything. The plan backfired, and he lost all of his money. He was in the negatives by the end of the round and had to sit out of Final Jeopardy.

Did we witness the dumbest play in the history of Jeopardy? I don’t think so–Roger’s play actually demonstrated quite a bit of savvy. Although Roger is a phenomenal player, Brad and Ken are leaps and bounds better than everyone else. (And Brad might be leaps and bounds better than Ken as well.) If Roger had made a safe wager, Brad and Ken would have likely eventually marched past his score as time went on–they are the best for a reason, after all. So safe wagers aren’t likely to win. Neither is wagering everything and getting it wrong. But wagering everything and getting it right would have given him a fighting chance. He just got unlucky.

All too often, weaker Jeopardy! players make all the safest plays in the world, doing everything they can to keep themselves from losing immediately. They are like football coaches who bring in the punting unit down 10 with five minutes left in the fourth. Yes, punting is safe. Yes, punting will keep you from outright losing in the next two minutes. But there is little difference between losing now and losing by the end of the game. If there is only one chance to win–to go for it on fourth down–you have to take it. And if there is only one way to beat Brad and Ken–to bet it all on a Daily Double and hope for the best–you have to make it a true Daily Double.

Edit: Roger Craig pretty much explicitly said that this was the reason for his Daily Double strategy on the following night’s episode. Also, this “truncated punishment” mechanism also has real world consequences, such as the start of war.

Edit #2: Julia Collins in the midst of an impressive run, having won 14 times (the third most consecutive games of all time) and earned more money than any other woman in regular play. She is also fortunate that many of her opponents are doing very dumb things like betting $1000 on a Daily Double that desperately needs to be a true Daily Double. People did the same thing during Ken Jennings’ run, and it is mindbogglingly painful to watch.

The Nefarious Reason to Draw on Jeopardy

Arthur Chu, current four-day champion on Jeopardy!, has made a lot of waves around the blogosphere with his unusual play style. (Among other things, he hunts all over the board for Daily Doubles, has waged strange dollar amounts when getting one, and clicks loudly when ringing in.) What has garnered the most attention, though, is his determination to play for the draw. On three occasions, Arthur has had the opportunity to bet enough to eliminate his opponent from the show. Each time, he has bet enough so that if his opponent wagers everything, he or she will draw with Arthur.

It is worth noting that draws aren’t the worst thing in Jeopardy. Unlike just about all other game shows, there is no sudden death mechanism. Instead, both players “win” and become co-champions, keeping the money accumulated from that game and coming back to play again the next day. There is no cost to you as the player; Jeopardy! foots the bill.

Why is Arthur doing this? The links provided above give two reasons. First, there have been instances where betting $1 more than enough to force a draw has resulted in the leader ultimately losing the game. Betting more than the absolute minimum necessary to ensure that you get to stay the next day thus has some risks. Second, if your opponents know that you will bet to draw, it induces them to wager all of their money. This is advantageous to the leader in case everyone gets the clue wrong.

That second point might be a little complicated, so an example might help. Suppose the leader had $20,000, second place had $15,000, and third place died in the middle of the taping. If the leader wagers $10,000, second place might sensibly wager $15,000 to force the draw if she thought she had a good chance of responding correctly. If only one is correct, that person wins. If they are both right, they draw. If both are wrong, second place goes bankrupt and the leader wins with $10,000.

Compare that to what happens if the leader wagers $10,001 (enough to guarantee victory with a correct response) and second place wagers $5,000. All outcomes remain the same except when both are wrong. Now the leader drops to $9,999 and the person trailing previously wins with $10,000.

Sure, these are good reasons to play to draw, but I think there is something more nefarious going on. Arthur knows he is better than the contestants he has been beating. One of the easiest ways to lose as Jeopardy! champion is to play a game against someone who is better than you. So why would you want to get rid of contestants that you are better than? Creating a co-champion means that the producers will draw one less person from the contestant pool for the next game, meaning there is one less chance you will play against someone better than you. This is nefarious because it looks nice–he is allowing second place to take home thousands and thousands of dollars more than they would be able to otherwise–but really he is saying “hey, you are bad at this game, so please keep playing with me!”

In addition, his alleged kindness might even be reciprocated one day. Perhaps someone he permits a draw to will one day have the lead going into Final Jeopardy. Do you think that contestant is going to play for the win or the draw? Well, if Arthur is going to keep that person on the gravy train for match after match, I suspect that person is going to give Arthur the opportunity to draw.

It’s nefarious. Arthur’s draws could spread like some sort of vile plague.

Math Can’t Fix This: Doritos Locos Tacos Doritos Ad Infinitum Taste Nothing Like Doritos

Well, it finally happened. After a year of resistance, I finally had a Doritos Locos Taco over the weekend. It pains me to say this, but they are delicious. I actually look forward to trying Doritos Locos Tacos Doritos–which, if you haven’t heard, are Doritos intended to taste like Doritos Locos Tacos.

I relayed this story last night to some URDPS folk and how I intended to create tacos using the Doritos Locos Tacos Doritos. This is when a stunning realization hit us: the Doritos Locos Tacos madness will eventually taste nothing like Doritos.

Why? Well, the chip portion of the taco only occupies the shell. This is a fixed amount of the taco as a whole. Let’s call this Doritos flavor amount p, where 0 < p < 1. Since Doritos Locos Tacos Doritos taste like Doritos Locos Tacos, they have p portion of Doritos flavor.

What happens when you construct Doritos Locos Tacos Doritos Locos Tacos? Again, the shell only takes on the flavor of chip, which is p portion. But we have diminishing Doritos returns, as that p portion only contains p portion Doritos flavor. So the Doritos Locos Tacos Doritos Locos Tacos only have p^2 Doritos flavor. And, likewise, the Doritos Locos Tacos Doritos Locos Tacos Doritos only taste like p^2 Doritos.

How about a third iteration? Again, the shell of the Doritos Locos Tacos Doritos Locos Tacos Doritos Locos Tacos only takes p of the flavor. But the original Doritos flavor only occupies p^2 portion of the Doritos Locos Tacos Doritos Locos Tacos Doritos shell. So the Doritos flavor is only p^3, and same for the corresponding Doritos Locos Tacos Doritos Locos Tacos Doritos Locos Tacos Doritos.

You can see where this is heading. The nth iteration of Doritos Locos Tacos and Doritos Locos Tacos Doritos have p^n portion of Doritos flavor. A little bit of math tells you that as the number of iteration approaches infinity, the total Doritos flavor goes to 0.

In other words, you end up with Doritos that don't taste anything like Doritos despite having n + 1 "Doritos" mentions in the name of the chip. They just taste like the inside of a Taco Bell taco.

How to Save $365 on an iPhone

I have a really crappy phone. Observe:


I have never had a smart phone. I may never have a smart phone. And I am happy.

You might think this is because I am a Luddite. Wrong! I have an iPod–a really fancy iPod. A lot of people don’t realize this, but iPod Touches essentially function like an iPhone. I can browse the internet on it. I can read email, browse Facebook, and tweet. I can take pictures (see above!) and film video in 1080p. Basically, I can do everything you do on your iPhone except: (1) make standard phone calls, (2) get maps on the fly, and (3) have roaming internet.

Even these three exceptions aren’t that bad. I have a crappy phone to make calls, and I could use Facetime/Skype to call on my iPod if I really wanted to. I pre-load maps on my iPod before leaving my house, so I still use my iPod to know where I am going. Moreover, iPods use WiFi signals to determine your location, so I have some sort of GPS capability as I am driving around. Finally, I can always hop onto an open WiFi connection to get internet outside of my home. Given that I work on a college campus, the University of Rochester covers 90% my internet needs. Many large stores (Macy’s, Target, Sears) also offer public WiFi, and coffeeshops have been since forever.

Really, the only time I wish I had an iPhone is when I am completely lost, have no clue where I need to go, and am so far removed from civilization that there is Starbucks in sight. In other words, almost never.

What do I gain? Well, my new 32GB iPod 5 cost $299. That’s a one time price. I don’t pay anything per month for the iPod to function.

Alternatively, I could have purchased the equivalent iPhone for $199 using my scheduled upgrade. However, this requires a two-year contract. These contracts must have a data plan, which is not a part of the standard calling package I use for my junk phone. The cheapest of these plans runs $20 a month, or $480 over the lifetime of the contract. Thus, the real cost of the iPhone is $679.

Subtract $299 for my iPod and $15 for the cost of my junk phone, and I save $365 over the two-year span.

Your costs may vary based on your phone carrier. (I am on ATT and have a family plan.) Your benefit of having an iPhone may vary as well. Someone who doesn’t have access to WiFi at work like I do (what a miserable life!) might find the extra price worthwhile. Likewise, if you use your iPhone like a serious GPS system, an iPhone might make sense.

Nevertheless, when your current contract expires, it is worth investigating whether you are better off with an iPod.

TL;DR: Buy an iPod Touch, not an iPhone.