Shipping the good apples out - an Alchian reminder

I need to get back to blogging my columns. Been using Twitter for too much microblogging and linking to them, not enough archiving of them here. 

At Newsroom this week I'd reminded folks about Hotelling and pricing of non-renewable resources over time - with application to carbon forestry.

Last time around at Newsroom, I'd reminded folks about Armen Alchian and shipping the good apples out - with application to ag exports and complaints about shipping the good apples out. 

The piece concludes:

Even consumers with identical incomes and identical preferences will be more inclined toward the higher quality goods in situations where the purchase of a good or service comes with an added fixed cost – eg transportation. Or, in the case of parents with children, hiring a babysitter.

“If they hire baby sitters at, say, $1 an hour [remember that Alchian was writing decades ago!] and are out for four hours, it will cost $4 just to leave the house. Now, add the cost of two movie tickets at $1 each, and compare that total cost with the cost of going to the theater (at $4 per ticket). The theater costs a total of $12, and movies cost $6. The theater, then, costs twice what a movie costs. But if a couple has no children and can avoid the baby-sitter fee, the movie will cost $2 and the theater $8 – a ratio of 4 to 1: the theater is relatively more expensive. In our original question, we did not assume parents will go to the theater more than people who have no children; we said, when young parents go out, they will go to the theater a larger fraction of the time than will childless couples. QED.”

Beautiful and concise. Once you see it, you can’t stop seeing it. And you can’t help but notice when others fail to notice this ‘Third Law of Demand’.

There is a very good reason New Zealand’s farmers ship out the best produce. If transporting top quality produce doesn’t cost much more than transporting more standard fare, then our best will always be relatively less expensive, as compared with standard goods, in our export markets.

And these effects work in both directions. New Zealand will import a lot of other countries’ good grapes, or good oranges. Their lower-grade produce will be less likely to be exported.

You could try to undo these effects in some ‘rethinking’ of food systems, but it really wouldn’t be a good idea.

 

Fixed costs in small countries

Yesterday's column over at Interest.co.nz hit on some of the ridiculous self-imposed fixed costs of government policy in New Zealand. A taste:

We could argue about the ridiculousness of the implementation of the New Zealand regime, or we could ask the more important question: why does this office [Office of Film and Literature Classification] exist at all? Why does a country of four and a half million people have an office for film classification when so many neighbouring countries, similar to New Zealand in culture and norms, already have their own systems? Every rating decision involves cost to the would-be distributor: the classification fee charged by the Censor’s Office, plus the hidden cost of the time, effort, and hassle involved.

In a better world, the government could simply require that programmes distributed in New Zealand carry the classification of any other trusted country’s ratings board: Australia, Canada, America, the UK, or others. It’s pretty rare that a locally produced film wouldn’t be intended for eventual international release; if the filmmaker weren’t already seeking an international classification, self-rating by the local producers could also work well.

Worse, when a body like the Censor’s Office exists, local industry can use it to try to block competitors’ imports.

Slingshot and other ISPs’ global-modes, allowing Kiwi customers to sign up for Netflix as though they were American, is just parallel importation applied to digital content. Local rights-holders supported the Censor’s Office attempts at blocking those services, with pious appeals to protecting the children from unrated content. We should properly see the Censor’s Office as a non-tariff barrier to trade in film and literature, which locals can exploit anti-competitively.

New Zealand has rather a few of these local fixed-cost-raising regulations. If you’re a doctor with a stellar reputation in Canada, you still need to go through New Zealand registration; that requires placement in a New Zealand hospital, and placements are limited. Would you, as a tourist in Canada, be at all worried about being treated by a Canadian doctor in a Canadian hospital? No. But that same doctor cannot move to New Zealand and set up a General Practice without jumping through the hoops.

Perhaps there could be reason for a short course training foreign physicians to recognise diseases prevalent here that aren’t as common elsewhere, but beyond that, the government’s increased the cost of medical services in New Zealand by imposing an unnecessary fixed cost on the system. Similarly, I simply cannot understand why building materials that have been deemed suitable for other wet and shaky environments, like Japan, British Columbia, or the American Pacific Northwest, aren’t simply deemed to be good enough for the New Zealand market as well.

Fixed costs in small countries, again

The Productivity Commission explains New Zealand's high prices:

The overall messages from this analysis are:

• Modelling the determinants of non-tradables prices using the extended FG model works fairly well in general, and especially for a group of OECD-Eurostat countries. 

• This supports the hypotheses that: 

• Non-tradables prices are higher in association with higher values of capital and unskilled labour endowments, and trade deficits; 

• Non-tradables prices are lower in association with higher values of skilled labour, and population;  

• Tradable prices also tend to be higher where non-tradables prices are higher both because this raises the (non-tradable) input costs for tradables, and because high tradables prices are impacted by „trade impediments‟ and indirect taxes. 

• The model suggests NZ‟s relatively small population and high tradables prices tend to raise its non-tradables prices relative to other countries. NZ‟s lower than average capital endowments should serve to counter-act these high prices, but modestly. (NZ has the 28th highest ranked capital endowment, and 25th highest capital/labour ratio, out of 43 countries). 

• For labour endowments, taking a ratio of skilled labour (differences) to population (differences), NZ is ranked 29th out of the 43 OECD-Eurostat countries in this ratio, so that its relatively low skilled labour per capita also serves to raise its service prices.

• NZ's relatively high price of non-tradables is estimated to add around 40% to the domestic consumer price of tradables, compared to border or factory gate prices. This is also around the OECD-Eurostat average cost share. 

• However, after accounting for this 'cost share of non-tradables' contribution, NZ's tradables prices remain fairly high by international standards. A "good candidate" to explain this are the transaction costs associated with NZ‟s distance from markets. Though we have not examined direct evidence on this here, numerous other studies have suggested the importance of such factors; see, for example, McCann (2003, 2009). 

• Based on "adjusted" tradables prices that removes the "cost share of non-tradables" element, NZ's tradables prices are around 6th highest in the 43 country OECD-Eurostat sample – behind such countries as Iceland, Norway and Japan (see Figure 6). These are also countries relatively distant from many of their key markets. (For Japan at least, other protectionist measures may also be relevant). However, Australia is ranked 19th out of 43 countries in its adjusted tradables price, suggesting that to the extent that there are "disadvantages of distance", Australia manages partially to avoid or overcome these.

• As Figure 6 shows, NZ is like a number of other small countries with a high adjusted tradables prices (e.g. Cyprus, Malta, Denmark, Finland, Israel, in addition to the "small and distant" economies of Iceland and Norway). This suggests that size or other characteristics of domestic markets/populations may be important in ways not already accounted for by the FG model's variables.

Labour has been exercised lately by the high costs of an increasing population: new migrants come in and bid up the price of housing where housing supply cannot expand to meet increased demand. They might worry instead about the longer-term costs of being small if they block migration. We can't do much about distance. But we can get bigger.

Other points worth thinking about:

• Our relatively high cost of alcohol and tobacco is particularly noted by the Commission; this does run contrary to the usual story we're told about alcohol being too cheap in New Zealand.
• I wonder whether results would be affected much by taking PriceSpy import prices instead of domestic landed prices for some consumer goods. How much does PriceSpy, and related services, constrain domestic prices?
• Gemmell's prior work showed footwear and clothing to be expensive here. I note that footwear still here attracts a 10% tariff. We could fix part of our stupid-high-prices problem by getting rid of the tariff that helps make one of those price categories more expensive than it needs to be. Sir Roger tried back in 2010; National vetoed the change.

If you're Wellington-based, Norm Gemmell's talk on all of this starts in Lecture Theatre 3, Rutherford House, Victoria University, in about 2 minutes.

Update: See also Donal and Matt.

Travel Arbitrage

Alex asks if you can fund international travel by moving goods to places where they cost a lot.

Here's how you get to New Zealand.

Buy a Dell M6800 Workstation in the US for $2000 US. That's $2400 NZD.

That same computer sells for $5000 NZD in New Zealand, including GST. So $4350 without GST.

There aren't any of these up on TradeMe (our version of EBay). And I have no clue what discount "hard to warranty but otherwise brand new" computers sell at here. So there's some risk involved. But a $2000 NZD price difference on a single computer would cover an airfare from LAX to AKL. Bring a couple just to be safe. If customs thinks you're going to sell them here, they might stick you with 15% GST on the US price. Parallel importation is fully legal here though - whatever exclusive dealing arrangements Dell has with its NZ branch, the NZ government doesn't care about. If Dell NZ wants to punish Dell US for selling to somebody planning on on-shipping to NZ, that's up to Dell NZ and Dell US to sort out.

I need to replace my aging work Dell Latitude E6500. I drool over the M6800. It would be in-budget at US prices, but no way on NZ pricing. Instead I'm looking at the E6530. It also costs about twice as much as it would in the States.

I don't know why Dell charges double for a laptop in New Zealand. But they do. If I were buying one for personal use, I'd just buy the American one and get it here via YouShop; I'd be very happy to pay Customs the 15% at the border. If the University were doing it, it wouldn't even attract GST at the border as it's for business purposes and then is a non-taxed input. 20:1 that trying that for work would break at least 3 University rules, even if it did save a lot of money.

Apple usually takes a lot of stick for international pricing shenanigans, but their base model MacBook Pro has only a USD$100 markup in NZ (8%); the highest-end one has a $300 markup (11%).

If you're planning on financing your trip by bringing computer kit to New Zealand, compare prices at PriceSpy with prices at NewEgg. I should probably try it next time we head Stateside, just to see whether the arbitrage works. At worst I'm stuck with a new computer at home. I expect that much of the potential gains would be eaten up figuring out NZ/US model equivalencies.

Netflix and fixed costs

My usual explanation for Netflix's absence from the New Zealand market has been rights and licensing issues. The fixed costs of getting things sorted out for a small market mean that the game's not worth the candle for Netflix, so they're not here.

As we always tackle the big issues in the Canterbury econ department staff lunchroom, we yesterday argued about Netflix. And Stephen Hickson raised a reasonable counter to my fixed cost argument around navigating rights: iTunes sells movies in New Zealand. If iTunes could handle the fixed costs of dealing in a small market, why couldn't Netflix?

So I checked and it is indeed true that you can download a lot of movies on the New Zealand version of iTunes. But they're expensive. A standard rental is around $8. Purchasing a film is $25. Last I'd checked, Netflix charged $9 per month for all-you-can-eat downloading of anything from their base of movies. Maybe it's since changed: I'd have to circumvent geoblocking to be able to tell.* But if the iTunes standard model is really expensive access to recent films, and the Netflix model is really cheap access to a great big pile of movies, then it's entirely plausible for fixed costs and rights issues to keep Netflix out while iTunes is able to make a go of it. And where Sky has a lot of rights sewn up, they might care rather more about competition from a Netflix style model than about competition from the New Zealand version of iTunes which seems more expensive than either the video rental store or buying DVDs.

For now, then, I'm sticking with my story around fixed costs of navigating rights arrangements. Netflix needs rights to a pile of lower-value films to make their model work, and negotiating for each of those for a small market like New Zealand just isn't going to be worthwhile.

A lot of the high demanders would already have simply circumvented geoblocking (it really isn't hard) and subscribed that way. While Netflix likely gets better margins out of the low demanders - the ones who pay and who download little - it likely just makes more sense for them to take grey market subscription payments from Kiwis who've ungeoblocked than to sort out the rights messes to get the tail of low demanders in a small market.

* Wanting to verify that circumventing geoblocking was easy, I installed Hola. My Chrome install at work is a bit buggy; I have to manually unpack and install extensions. Nevertheless, in about 2 minutes I was into Netflix as though I were American. And now I see that they're only charging $8 per month. I suppose I'll have to install this on the machine at home and sign up.

Previously:

• Caught in the stone age
• Caught in the stone age - Australia too

Competition in small markets

Another for the "New Zealand's Fixed Costs Matter" file: Aaron Schiff posts on the relative lack of competition in New Zealand. Where inefficient firms are driven from the market in other places, New Zealand has a long tail of pretty unproductive outfits.

Roger Procter has dug into the stats a bit deeper and found that some New Zealand firms have very high productivity but there is a very long tail of unproductive firms that are able to survive.

He notes that the ratio of the productivity of the firm at the 90th percentile (i.e. near the top) to the 10th percentile (bottom) of the productivity distribution in New Zealand industries is around nine.

In other words, a firm that is nine times less productive than the best in the same industry can survive in New Zealand. In Denmark, for example, the ratio is reported to be around 1.6 to 3.5. Danish firms that can’t achieve at least a quarter of the productivity of the best firms get killed off quickly.

Roger argues, and I agree, that lack of competition is a major reason for this. Competition forces firms to increase productivity and kills off those that don’t.

Aaron agrees with Procter's assessment that New Zealand's low level of international trade hurts things, then makes a rather interesting argument for import-led growth.

We’re stuck in a low-competition, low-productivity, low-trade equilibrium. New Zealand domestic markets are too small to support enough intense competition to get us out of this state. Exporting is hard work and not enough firms are motivated (or forced) to drag the economy up the productivity mountain.

On the other hand, if low cost imports from productive foreign firms start coming in, maybe NZ firms will be forced to improve their game, or get killed off.

I realise this is a harsh “stick” type strategy, rather than an export “carrot”. Exports create jobs and imports can destroy them, at least temporarily. Maybe I’m getting soft in my old age but there might need to be assistance for some workers during the transition. But given the dire productivity stats, maybe a strong shock to the system is required.

There's not a lot that we can do to make New Zealand even more open to imports: tariffs are very low, GST rules around imports currently make sense, and we see no need for the New Zealand government to enforce at the border any exclusive dealing arrangements that foreign manufacturers have seen fit to make with New Zealand retailers. But getting rid of our ability to run parallel importing, or doing dumb things imposing GST on low-value imports, or forcing a policy preference for New Zealand Made products, would do harm.

Standards shopping

Small jurisdictions have a hard time covering all the bases. Developing regulations is expensive. If you're determined to have "My Jurisdiction" versions of each and every regulation that could be out there, you're either going to have a ridiculously expensive regulatory regime or you're going to stymie development in niche markets.

Yesterday I pointed to the problems facing Manitoba's Harborside Farms. They want to develop traditional Italian cured meats in small artisanal batches for sale in Manitoba. But they're forbidden from doing it because, unless you can prove your product meets Manitoba regulations, you can't sell it. And it's a sufficiently small market that Manitoba never got around to writing any regulations that would allow them to operate.

Leaving aside for now the very sensible alternative of simply allowing standard consumer protection legislation and liability solve this kind of issue, there's an obvious alternative. Let them produce their product under the Italian regulations, then have Manitoba inspectors verify that they've met the Italian standard.

The problem is very similar to one facing importers of niche-market DVDs in New Zealand. How? You can't sell DVDs here unless you get them rated by the Censor's Office. And they don't rate DVDs for free. If you make a buck a piece on the sale, you'd still need to ship a thousand units in a country of four million people (and change) to cover just the ratings cost.

The solution there is the same as that which should obtain for Harborside. Allow import of films that have been rated by the Australians, or the Canadians, or the Brits, or the Americans, or some other set of trusted countries, and simply require that the ratings sticker note the country which issued the rating.

This kind of solution can be applied across rather a few thin-market small-jurisdiction scenarios. Why does every small area have to reinvent every wheel?

Take it a step further. If Manitobans can import Italian-made products meeting Italian standards, why shouldn't they be able to produce things in Manitoba to Italian specifications, even if a Manitoba regulation does exist? Simply require that the product be labelled as meeting Italy's standards.

Maybe it wouldn't work for everything. A building that meets Canadian building standards instead of New Zealand standards would be better than a New Zealand standard building, unless there's an earthquake. But again, it isn't hard to imagine strange niche construction areas where there might not be domestic specifications, but where the Japanese standards would work a treat.

The fixed costs of developing regulations aren't trivial. Why not allow a bit of forum shopping to spread the burden?

Labelling and non-tariff barriers

David Farrar asks why we shouldn't mandate nutritional labelling on alcoholic beverages. People may well forget that alcohol has caloric content; providing information has value.

Here's the case against them.

First, it is fairly easy for large producers of homogeneous products to add nutritional labels to their products. The one-off testing and label re-jigging is a fixed cost that is spread across a very large number of units. But, suppose you're a craft brewer and you get a notion to make a seasonal autumnal ale with pumpkin in it. It'll taste good and sell well as a small batch. But after you make a batch, you're going to have to send a bottle to the lab for testing, wait for the results, and attach the appropriate nutritional label to your new brew. This will add maybe a fortnight or more to your brewing cycle on the first batch of the product and cost you a bit in testing. You can't spread those costs over many units because you're not making many units. And heaven help you if you decide you should double the pumpkin in the next batch.

Second, it's a non-tariff barrier against imported products made in countries that do not have labelling requirements. When New Zealand implemented labelling requirements for standard drinks a few years ago, the shop where I bought my oddball foreign grey market craft beers had to print off little labels for each bottle of the one-offs that they sold, converting the percent alcohol content into a number of standard drinks. This added to the cost of foreign craft beer relative to domestic or mass market product.

You will rightly note that this is also an argument against mandatory nutritional labelling requirements on any small volume products.

If there's any steam behind nutritional labelling requirements, there are things we can do to make it less awful.

The easiest labelling requirement would only require that producers give a general range of calories contained per serving of the product based on the alcohol content alone. A gram of alcohol has seven calories, so a standard drink contains 70 calories. Most products could then simply say something like:

"One serving of this product provides 50-100 calories through its alcohol content."

If you really want to know the protein, carbohydrate, sugar and salt content for the drinks, carve out an exemption for small-batch products and for imported products. 

I really love the oddball small-batch beers that turn up in New Zealand, whether made domestically or imported. Anything that adds fixed costs helps to kill that product range. New Zealand has enough problems with fixed costs without inventing more of them.

Stupid NZ Fixed Costs

Tyler Cowen warned me that New Zealand would teach me about fixed costs.

Today's lessons: pens. Consequent to the new environment of heightened fiscal restraint at Canterbury, I have found that the Uniball Signo 207 pens I've preferred are $5 each via the University's preferred supplier.*

The same pens at Amazon are US$12.59 for a dozen with free shipping within the US. That's about $1.31 per pen. The cheapest online NZ price I've been able to find is $3. Freight brings it up to $3.50 - I'll leave GST off because Amazon doesn't charge it and because the University doesn't pay GST on business inputs. A $2.19 per pen NZ premium.

Prezoom charges $19.50 to on-ship a 500 gram package from the US. The pen weighs 10 grams, so a dozen comes in well under the 500 gram limit. So a dozen pens, that go from Amazon to Prezoom then on to me in NZ across the ocean arrives at my desk for $35.25; the same dozen shipped from New Zealand is $42. The hassles and delays are not worth $7. If I needed 50 pens, the most that would fit in the 500 gram pack, I'd save $90. But who needs 50 pens? And how many pens' weight would be in the packaging? Finally, the transactions costs of trying to convince University admin that it's worthwhile ordering case lots of pens in from the States seem insurmountable, especially if they already make it a hassle to try and use anybody other than the preferred supplier within NZ. [see update, below]

New Zealand... it's the little things that irritate. I'm not saying that NZ retailers are earning any kind of excess profit here: warehousing and logistics in a small country are just more expensive, and keeping any kind of inventory in a small market also just kills. It's simply an irritating fact of the world.

I'll tell you one thing though... next request to borrow a pen gets met with harsh words.

 


* UPDATE: that's the catalogue price. The departmental administrator tells me the University gets a pretty substantial discount against that price. It's still reasonably above the US price even counting shipping from the US, but below the cheapest online price. It's still cheaper to get a 50 pen lot shipped here from the States than to buy them from the University's preferred supplier.

One day a week restaurant

There are lots of restaurants out there that close for one or two days a week - family outfits that need to have a break. There are lots of folks out there who'd like to run a restaurant, but can't handle the fixed costs of starting up. Two Wellingtonians have found the perfect solution: the one-day-a-week restaurant.

A Thai restaurant owned by a Burmese woman is going Ethiopian.

Well, at least one night a week.

Dawit Demissie, a refugee from Ethiopia, takes over the Brooklyn restaurant every Monday night, serving his traditional cuisine.

The 31-year-old arrived in New Zealand in 2002 and hopes to open his own restaurant. Mr Demissie, who works as a taxi driver and studies English, has teamed with mentor Annie Coates who runs the Golden Lotus.

"She's very special," he said. "I don't have words to describe her . . . She's like my mum."

So on Mondays, the Thai restaurant features Ethiopian cuisine and decor.

Mr Demissie designed the menu, buys the ingredients and prepares the food and has family and friends helping out waiting tables.

"I'm very happy to show my traditional food. I'm not looking for the money. It's about introducing people to my food."

...
After two weeks, it had been a hit. "People are asking me, 'Why just one night? We want more than one night.' So we will see how it goes."

Mr Demissie met Mrs Coates through ChangeMakers Refugee Forum, where she is also a cross-cultural worker.

Mrs Coates, who moved to Wellington from Burma in the early 1980s with her Kiwi husband, said she was giving Mr Demissie a chance so one day he could open his own restaurant. "I'm just paving the path for him . . . I like to help refugees establish and achieve something."

The restaurant was normally closed on Mondays so, when he told of wanting to open his own ethnic restaurant Mrs Coates thought it was a perfect opportunity for him to learn the trade.

What a perfect solution and such a great story. Steve Whittington helpfully pointed me to the place; I went there last night. Excellent. It had what I think was the best hummus I've ever eaten. They were more than happy to serve the kitfo properly raw; very nice. And of course Ethiopean food made with Kiwi lamb was bliss-inducing. Very obviously a family-run affair. I was very glad to see the place doing a brisk trade.

I will henceforth try to plan any business trip to Wellington to fall on a Monday.

I wonder why we don't see more of this kind of solution. The host restauranteur would really need to be able to trust the folks running the one-day-a-week option, and they'd have to be comfortable that some of their irregular customers might get confused. Neither of those should be insurmountable though. Does anyone know of other places where this happens?

Over dinner, I told Matt Burgess that New Zealand needs to ease its immigration restrictions, and that if it only wants to ease them somewhat rather than across the board, it should put priority on immigration from countries whose cuisines are currently underrepresented in New Zealand. Top of the list would be Ethiopia, but also high on the list would be Afghanistan, all of South America, and other parts of North Africa. And sufficient numbers of folks from each community should be welcomed in so as to provide a cultural base for the restaurant to be able to continue without blanding things down to suit the modal Kiwi palate. Matt thought this absurd. I'll admit it's not as good as a general liberalization, but it certainly beats the status quo.

Update: One commenter at Marginal Revolution suggests a potential answer: regulations that can make it very difficult for different operators to share a kitchen.

Caught in the stone age - Australia too

I'd wept a couple months ago seeing the gap between the US and NZ widening.

Josh Gans is on sabbatical at Harvard and is having the same experience:

In Australia, TV is dictated at the behest of four networks and one cable provider. There is nothing reliable on the internet and paid for services like iTunes are crippled. In contrast, in the US, I subscribe to a single provider, Comcast, for all television, internet and phone requirements at the home. The television comes over a DVR that runs Tivo and so can be programmed from anywhere. But who cares about programming? They actually have an ‘On demand’ service that has all of the main programs you may have missed. And, of course, all of this is in real 1080i HD. And you can use the same service to watch and pay for new release movies so we don’t even own a DVD (that technology lasted less than a decade in our household).

But wait, there’s more. Not satisfied with that and you can watch much of the stuff online anyway. Hulu is a well designed service that really works. Of course, you can’t skip through ads but who cares. There is just one per break and they tell you how long it will last! And add to that that I face no download caps and you have all you want. (Oh yes, if you think I am stuck with US programming and that is a minus — not from my perspective but others might think so — then think again. I got to see Doctor Who the day it aired in the UK.)

Finally, the phone on top of this costs pretty much nothing. I can call anywhere in the US and Canada for the cost of a local call — which turns out to be $0 per minute. The voice mail is accessible online so I don’t have to be at home to pick up. In any case, I use Google Voice which calls all my phones and so I don’t really have to be worried about receiving calls at home. In any case, if I’m watching TV and there is a call it will tell me who is calling on the TV. Now that is a benefit of an integrated communications service.

Australia puts up with continual crap on this front. None of the technology here is monopolised and non-transferable to Australia. I fear we will get a shiny new NBN with none of this and wonder why consumers don’t want to pay much to use it. It is like strapping a jet engine on to a horse buggy. Our persistent lagging on this suggests that we need government review to understand what is holding Australia back. At the moment, I don’t want to come home.

I still say it's mostly a problem of fixed costs. Getting the rights to air each separate item in the Hulu library outside of the US? Fixed cost. Getting the rights to distribute movies outside the US (for Netflix)? Fixed cost. Population in NZ isn't high enough to justify it; apparently it isn't for Australia either.

Caught in the stone age

Wired's new September piece on Netflix business strategy is leaving me, well, somewhat shellshocked. Of course I couldn't have expected that the US would stand still since we left there. But wow.

A lot of US debates on traffic shaping suddenly make sense.

Things I didn't know:

• Tons of media devices, from XBox to TVs, have a Netflix card now built in that let the devices stream movies


• Netflix uses data from customer DVD rental queues to prioritize movies to purchase for online streaming. It's basically Moneyball applied to movies: Netflix goes for the ones that did poorly in theatre, so streaming rights will be cheaper, but where Netflix expects high customer demand.


• $9 per month gets you unlimited streaming of 17,000 movies. If you don't already have a Netflix enabled device, their set-top player costs $80.

I'd figured that relatively few folks would be downloading movies: the hassles of downloading and then getting them onto the TV seemed sufficiently large that all the traffic shaping stuff seemed absurd on the face of it. But if it's built into your TV!

Closest NZ equivalent: the newly released TiVO box. You can either pay $200 upfront and then $30 per month on a 24-month contract, or pay $920 upfront. That gets you a TiVO box that'll let you stream old movies at $5 a pop or new(ish) releases for $7 each. If you're a Telecom subscriber, it at least doesn't count against your 20GB monthly data allowance ($60/mth) or your 40GB limit ($80/mth). All of that's in $NZ, so multiply by $0.74 to get the current $US equivalent.

Tyler Cowen warned me that New Zealand would teach me the importance of fixed costs. Fixed cost here would have to be the streaming rights for New Zealand; otherwise, we could just jump onto the Netflix service, albeit at a much higher price to account for capacity issues on the pipes series of leaky tubes that service NZ from overseas.

I'm going to go weep off in the corner for a while.