econlife - An Unusual Pizza Market by Elaine Schwartz

Nantucket’s pizza competition is very different from almost everywhere else.  I’ve been told that my favorite place for pizza, Pi Pizzeria, has a 50% market share. Meanwhile, the island’s other three or four restaurants that mostly make pizza split the other half.

Where are we going? To pizza markets.

Pizza Competition

In most of the U.S., the pizza market is about big and small. The big side is Domino’s and Pizza Hut. And yet, each of us could also name a small pizza restaurant located near us.

You can see that the big chains command more than half of the market:

Among the top 50 chains, Domino’s is #1 with global sales that total close to $12.25 billion while Pizza Hut, at approximately $12.03 billion is close behind. Then, with Little Caesar’s and Papa John’s in third and fourth place, we leap down to $4 billion each.

At the same time, the Independents’ slices of the pizza business are much smaller. Leading the Independents’ list, Marion’s Piazza’s nine units had 2018 sales of $21.31 million. Moving down the list, we quickly reach much smaller establishment groups with sales of less than $10 million.

Reading about the two groups, I got a very different sense of how they attract us. The larger chains are talking technology. They make online ordering easy and are experimenting with robotic delivery. Domino’s has even called itself an e-commerce company that sells pizza. At the same time, the Independents are benefiting from a more sophisticated pizza consumer that cares about fresh, local, and organic.

Here you can see that where you live determines the pizza you most prefer:

Our Bottom Line: Competitive Market Structures

As economists, we can return to our continuum of market structures where, moving from left to right, firms grow larger and more powerful. With perfect competition, we find markets populated by many small firms that produce almost identical products such as potatoes or asparagus. Next, monopolistic competition takes us to businesses that are somewhat larger like hair salons and supermarkets. Hair salons, for example, produce many of the same kinds of items (hair cuts) but have something distinctive (a certain stylist) that gives them some pricing power and product differentiation. Then with oligopoly we have several large firms that are dominant and finally, at the other end, just like the game, monopoly takes us to single firm dominance.

Pizza is in the monopolistic competition range.

But not Pi Pizza. When you produce incomparably delicious thin crust wood fired pies on an island, you wind up with more of a monopoly.

My sources and more: The 2019 Pizza Power Report and Pizza Today are good starting points for learning about pizza markets. I also recommend WSJ for more on Domino’s and Adage to confirm that Domino’s was #1 in the U.S. and globally.

Ideal for the classroom, econlife.com reflects Elaine Schwartz’s work as a teacher and a writer. As a teacher at the Kent Place School in Summit, NJ, she’s been an Endowed Chair in Economics and chaired the history department. She’s developed curricula, was a featured teacher in the Annenberg/CPB video project “The Economics Classroom,” and has written several books including Econ 101 ½ (Avon Books/Harper Collins). You can get econlife on a daily basis! Head to econlife.

econlife - The Mystery of the Missing Money by Elaine Schwartz

Comedians Jerry Seinfeld and Joan Rivers were due department store refunds that they never claimed. Madonna had paychecks from Walt Disney that she did not cash. Somewhere, you and I might be missing money.

Forgotten cash can reside with insurance companies, retail establishments, banks, employers. Those who are unpaid can include individuals, public agencies, the United Nations. In New York, eventually, that money winds up as unclaimed property overseen by the state. In California it has added up to more than $7 billion:

If they don’t find you (and no one seems to try very hard), then the funds can wind up in a state’s coffers.

One exception is savings bonds.

Unclaimed Savings Bonds

Three Missouri sisters, Mary, Anna, and Bessie Segal, had $670,000 in a Kansas bank. However, none of them knew about it.

Starting during the 1940s, the three sisters had been buying U.S. savings bonds. The face value of each purchase was just $25 or $50 but the interest and principal accumulated. It appears that the three women forgot about their bonds and died without claiming them.

Now though Kansas is fighting with the federal government over possession of the bonds. The state says that its unclaimed property program has the right to locate and return assets or cede them to state coffers when no owners are found. An appellate court disagreed. It concluded that federal law precluded the Treasury from transferring ownership.

Kansas said it will appeal the decision. 24 other states have passed legislation that facilitates possession of unclaimed bonds.

Our Bottom Line: State Fiscal Health

Billions from savings bonds could become a new state revenue stream. How much a state needs the money relates to its fiscal health. So I took a look.

According to the Mercatus Center, the states with the healthiest fiscal prognosis were Nebraska (#1), South Dakota (#2), and Tennessee (#3). Meanwhile, Illinois (#50), Connecticut (#49) and New Jersey (#48) were at the bottom.

Their criteria included:

• having enough revenue to cover short and long term spending commitments.
• being able to weather an economic shock.
• having manageable debt, pension, and healthcare liabilities.

This was their ranking:

Also, I went to Pew to see the change in each state’s tax revenue:

So, where does this leave us? Illustrated by the quest for unclaimed property, we can keep in mind each state’s need for revenue. But also, do compare both maps. More revenue might not signal better fiscal health.

My sources and more: ABC Radio’s podcast The Money started me thinking about Australia’s missing money. From there, the trail moved to the U.S., the NY Times, Quartz, and an unredeemed savings bond case described by WSJ, here and here. And finally, Pew and Mercatus had the state fiscal health details.

Ideal for the classroom, econlife.com reflects Elaine Schwartz’s work as a teacher and a writer. As a teacher at the Kent Place School in Summit, NJ, she’s been an Endowed Chair in Economics and chaired the history department. She’s developed curricula, was a featured teacher in the Annenberg/CPB video project “The Economics Classroom,” and has written several books including Econ 101 ½ (Avon Books/Harper Collins). You can get econlife on a daily basis! Head to econlife.

econlife - The Downside of Vegan Leather by Elaine Schwartz

Your Tesla will soon be fully vegan.

For awhile now, the seats have been vegan. But Elon Musk recently announced that a non-heated vegan steering wheel will replace the leather version. As for a durable heated vegan steering wheel, they are still trying to design one.

Where are we going? To cowhide industry problems.

Leather Demand

We are eating more meat and the National Chicken Council projects that the trend will continue. From a per capita total of 57.2 pounds in 2018, they forecast an increase to 57.7 pounds this year:

More meat means more cows (and steer).

However, we are demanding less of the remaining parts. Except for the highest quality hides used for pricey handbags and couches, cowhide demand is way down. The hides that have been branded or blemished from average older animals had been used for less expensive clothing. Now though synthetics are replacing them. Then, making it even worse for the producers, methane emissions from cows (as burps) has made consumers avoid leather while 25% tariffs have cut cowhide exports to China.

Responding, the cowhide industry is shrinking. While smaller leather processors have left the business, the larger enterprises have seen hide prices plummet during the past five years from $81 to $4 for a branded cow. With less valuable byproducts, the entire value of the animal is sinking.

Our Bottom Line: Supply and Demand

You can see that the cowhide industry is suffering from a classic supply and demand squeeze. Elevated meat consumption has brought the number of hides up while demand is down from companies like Tesla and consumers whose tastes are shifting to synthetic “leathers” made from fruit peels or even ground coffee.

The result? When you have more supply and less demand, the equilibrium price falls:

Meanwhile Starbucks is engaging in its own product differentiation:

Returning to where we began, Tesla is helping to pull that cowhide demand curve downward.

My sources and more: This Bloomberg article is a perfect start for all you need to know about the market for cowhides. Next, the Washington Post provides the bigger vegan leather picture. Finally, if you want to read more about Tesla’s vegan future, electrek.co has the details.

Ideal for the classroom, econlife.com reflects Elaine Schwartz’s work as a teacher and a writer. As a teacher at the Kent Place School in Summit, NJ, she’s been an Endowed Chair in Economics and chaired the history department. She’s developed curricula, was a featured teacher in the Annenberg/CPB video project “The Economics Classroom,” and has written several books including Econ 101 ½ (Avon Books/Harper Collins). You can get econlife on a daily basis! Head to econlife.

econlife - The Surprising Reason That We Love Our Pumpkin Spice Lattes by Elaine Schwartz

We are about to witness the earliest (and maybe biggest) Pumpkin Spice Latte (PSL) launch ever. A week earlier than last year, the Dunkin’ pumpkin menu will roll out on August 21. At Starbucks we have to wait until August 27.

Perhaps because we were used to the Tuesday after Labor Day, the official Starbucks launch date feels much sooner. Below, you can see they made the switch last year:

Commenting on its popularity, a Dunkin’ employee suggested that pumpkin syrup be available all year round.

That would be a big mistake.

The Pumpkin Spice Latte

The Dunkin’ fanfare includes eight stores temporarily named Pumpkin’ where 250 guests will get some free pumpkin flavored coffee and a lip balm named Munchkins. (The eight stores will be in eight locations that together spell pumpkin–maybe Paducah, Utica, Memphis…we shall see.) Although apple cider doughnuts are new to the Dunkin’ menu, it’s the Cinnamon Sugar Pumpkin Signature Spice Latte that is creating the buzz.

Meanwhile Starbucks is engaging in its own product differentiation:

Our Bottom Line: Diminishing Marginal Utility

With all of this happening, there still is just one reason for the huge popularity of the Pumpkin Spice Latte. It is all about how much we enjoy that extra cup.

Given a pile of chocolate chip cookies when we are hungry, the first is delicious and so too is the second one. But then the extra pleasure we get from each subsequent cookie plummets. Or, using economic language, we say that the marginal utility diminishes.

Similarly, when Pumpkin Spice Lattes hit the menu, fans rush to purchase them. For whatever reason–taste, anticipation, trendiness–the quantity we demand surges. Next however, the excitement subsides and, sooner or later, we buy less. Like our chocolate chip cookies, we experience diminishing marginal utility. Every extra Pumpkin Spice Latte tastes less good…

However, before we can touch the bottom of our demand curve, Thanksgiving arrives and these limited edition drinks disappear from the menu.

So why do we love our PSLs? Because they are gone for at least eight months.

My sources and more: My first hint that a PSL would arrive early from Dunkin’ came from the NY Times. At the same time, BusinessInsider told us about the Starbucks rollout and this 2014 article described its discovery. Finally, I should add that although I am in Starbucks frequently, I have never purchased a PSL because I am one of the few people who dislike it.

Also, please note that several of today’s sentences about diminishing marginal utility were published in a past econlife and our featured image is from eater.com.

Ideal for the classroom, econlife.com reflects Elaine Schwartz’s work as a teacher and a writer. As a teacher at the Kent Place School in Summit, NJ, she’s been an Endowed Chair in Economics and chaired the history department. She’s developed curricula, was a featured teacher in the Annenberg/CPB video project “The Economics Classroom,” and has written several books including Econ 101 ½ (Avon Books/Harper Collins). You can get econlife on a daily basis! Head to econlife.