Tuesday, January 19, 2010

Beware arguing with an economist 

This is why you don't want to mess with us:
I raced to the sole fax service provider in town, a small office supply shop. He charged two bucks. I opened my wallet and discovered that only had a dollar. (To this day I rarely have more than five bucks in my wallet.) I asked him if he'd please fax it for a buck. He flat out refused my offer. "I have my overhead to consider."

The shopkeeper obviously didn't know he was dealing with an economist. "No, you really don't have overhead to consider. You face the same overhead expense whether or not you fax my paper. It will cost you no more than fifty cents for the phone call. Period. I give you a buck and you can make fifty cents that you can allocate to your overhead or anything else for that matter. If you keep insisting upon two bucks, you receive nothing for your overhead expenses. You lose. You don't make a penny."

He accepted my offer. I don't know if he bought my marginal cost / marginal revenue argument, or if he just wanted me out of his store. In either case, it's the margin that mattered.
I have used this argument to get hotel rooms at very cheap prices without needing William Shatner's assistance, including a Vegas Strip hotel for $20 many years ago. (I promised the clerk I'd never say which hotel, so the secret's still safe...)