Peak-Load Pricing

Pelican Brewery in Pacific City, Oregon is among the very best Oregon breweries (as evidenced by their many, many national and international awards) and yet it is very hard to find their beers in the store. This something that I wondered about: why aren't they more available in Portland (and other parts of Oregon)?

An answer immediately suggests itself when one visits the brewery. It is located at a wonderful spot on the coast, but Pacific City is a little out of the way as it is off US 101 a bit. It is also on the Oregon coast which is wonderful in summer but can be...er...damp in winter. One expects then that they have a familiar problem in economics: a fixed supply capacity (the brewery) and a variable demand. Electric utilities are the most common example given of this: there is high demand during the day and low demand overnight. For Pelican, one imagines that they sell lots of beer during the summer and have a lot of excess capacity in the winter. So they could increase capacity to sell more bottles in Portland but this would potentially exacerbate the overcapacity in the winter (or may not if demand for bottles is seasonal in the other way).

The economics answer to this problem is what is known as peak-load pricing, an extra charge for buying at a peak time. Perhaps Pelican should charge $6 for pints in May-October and $3 in November-April, for example. This would even out the demand during these periods and help solve the excess capacity problem.

Okay, so perhaps this is a bit fanciful, but I sure hope to find more Pelican Beer in Portland, it is great stuff.

Search Costs

Economists describe the cost of having to search (for a product, a low price, a mate, etc.) as, you guessed it, search costs. The result in equilibrium is that the higher the cost of searching the less you will do. So, for example, I was much more inclined to buy a CD, say, at whatever price I saw it for it the store I happened to be at than I am now that I can search for low prices easily on the internets. (Yes, I know, I am a dinosaur, I still buy the occasional CD) This leads to more intense competition, lower prices and, ironically, less of a need to search in the end because price disparities will be lower.

It is for this reason I celebrate the release of Beer Signal, a new free iPhone app that allows you to search the current tap lists of Portland-area pubs. I'll let Jeff of Beervana explain it in detail. My first try, based on first hand knowledge of a neighborhood pub I patronized yesterday with an end of school year celebratory fish and chips with my son suggests it has some work to do to become very accurate (which will be helped along by users so I am acting in a self-interested way in publicizing it). Still, it lowers search costs, enhances consumer welfare and will promote diverse and often rotating taps.

Better living through technology indeed...

Drink Beer not Gatorade!

Via John Foyston (from whom I shamelessly stole this beautiful picture) come some wonderful news: beer is a better rehydration agent than water, or so say Spanish researchers:

Researchers at Granada University in Spain have come across a discovery that will undoubtedly please athletes and sports enthusiasts - a pint of beer post workout or match is better at rehydrating the human body than water.

Professor Manuel Garzon, a member of Granada's medical faculty, made the finding after tests on 25 students over several months. Researchers believe that it is the sugars, salts, and bubbles in a beer that may help people absorb fluids more quickly.

My soccer team will be so pleased to hear that they were right all along...