Thursday, February 05, 2015

Did you offer to cut your salary?

I frequently hear complaints about, say, the airlines, along the lines of, "Oil prices have dropped, and yet the airlines haven't cut their fares!"

I am curious: Does the person making this complaint commute to work by car? If so, have they gone in to their boss and said, "You know, my commuting costs have dropped, so would you cut my salary a bit?"

Of course, there are other factors at play: perhaps the airlines are making huge profits, and the worker is just barely scraping by. But the general point holds: market participants enter a market looking to get the best deal they can. In general, there is nothing immoral about asking for any price one thinks one might be able to get.


  1. I do generally expect the price of something like airline tickets to fall if the cost of producing it falls, because that is how competition often plays out. In this case, the answer seems to be that airlines hedge against fuel price increases through long-term contracts. That means that even if oil prices fall, the airlines are still locked into paying a higher price for a while, so there are no cost savings that can be passed on.

    1. I *expect* they will fall as well. But if for some reason producers can keep their price high, do you consider them blameworthy? (Given that reason is not some monopoly grant or something like that.)

    2. I think Gene is talking about something other than expect in the sense of would predict. This is a nice example of highlighting a usually unnoticed symmetry, and drawing a conclusion from it.

    3. Gene,

      Blameworthy? No, of course not.

  2. One doesn't need to be a lib to be against price controls. (I'm against price controls, but I'm for minimum wage, so maybe I'm not consistent.)


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