What’s the Big Dilly (Dilly) with Intellectual Property?

‘You have to make a decision!’ you exclaim in a muffled shout, knowing that an entire afternoon of effort is riding on this one moment. Your partner nods calmly, and with an intense focus stares at the remaining spots on the board. “D3” he states, quietly but confidently. “It’s a hit. You’ve sunk my battleship” comes the disappointed reply from the other side of the divider. For a moment you sit in shock, until…

“Dilly Dilly!” your partner screams out, letting you know you have accomplished something great together. And what better phrase to commemorate the occasion? But where did the phrase even come from, and why does it seem that everyone can’t get enough of it? Who came up with it, and what were their motivations?

If you have watched television, or interacted with almost anyone who has in the past 6 months or so, you’ve likely heard the phrase “Dilly Dilly” before. Generally used as an exclamation of approval or excitement, the cries have swept the nation since the phrase’s debut in August 2017. While some phrases arise naturally and gain popularity through frequent use (or in today’s world, memes), others are carefully crafted through much trial and error. Such is the case with the phrase “Dilly Dilly”, which was created by marketers for the Bud Light (Anheuser-Busch InBev) brand.

Bud Light is ready to go to battle over a competitor's use of its medieval-themed slogan!
(Photo credit: Max Pixel/FreeGreatPicture.com)

The phrase has proven so popular, that Bud Light’s parent company is even preparing Super Bowl ads featuring the slogan. With all of this investment, it’s not surprising that Bud Light is pretty protective of the “intellectual property” they have cultivated. That protection was apparent in a rather amusing way recently, when a micro-brewery in Minnesota decided to name one of their beers the “Dilly Dilly Mosaic Double IPA”. As expected, Bud Light wasn’t about to let a direct competitor utilize their slogan, and chose to send legal documents to try to protect their intellectual property rights by forcing the micro-brewery to cease and desist. The reason this request made the news was due to the lighthearted way in which the cease and desist letter was sent; it was delivered by an “Old Timey Town Crier” who showed up unannounced dressed in full garb, reading out the legal document in old-timey language (as described in this article).  While this clever mechanism for delivery of legal documents made the news due to its peculiarity, I thought it would serve as a great platform for discussing why intellectual property rights exist in the first place, and why the court system would enforce them. (For proof of how this enforcement actually plays out, check out this recent settlement awarding $710,000 to ‘Grumpy Cat’)

I have heard reporters and commentators on television stations including CNBC and ESPN happily use the phrase “Dilly Dilly” as its popularity has grown, and Bud Light doesn’t seem to have any problem with this use. So why demand that one company cease and desist, while another is allowed (or even encouraged) to use the phrase? The answer lies in the fact that the value relies crucially on how popular or widespread the saying becomes, but at the same time how directly consumers relate the saying to the particular brand.

Companies invest a lot of time and money coming up with new slogans!
(Photo credit: Max Pixel/FreeGreatPicture.com)

Intellectual Property can take many forms. You may think of a cool new way to design a mousetrap, and to protect your design with a patent. Or you may come up with a new hit song that everyone seems to love. No matter the form of intellectual property, you’re only going to invest time and effort into trying to create it (likely failing many times along the way) if you think that you can at least recoup all of the money you invested by selling your successful product. In the case of Bud Light’s “Dilly Dilly” phrase, the company wants the phrase to be popular, but doesn’t want competing brands to be able to associate themselves with it. If there were no way to enforce ownership of such a phrase, you could just wait for someone else to develop a cool slogan and then steal it for yourself, rather than investing all of the time and money in failed attempts along the way.

As with most things in economics, it all comes down to incentives. To give companies an incentive to create new products, ideas, or even slogans, the government creates and enforces laws that forbid other entities from being able use those ideas or slogans for themselves. In other words, the government grants monopoly rights for some limited duration of time (perhaps 10 or 20 years), during which the inventor can earn profits on their property without other firms competing those profits away.

Bud Light found a rather ingenious way of enforcing their rights in a way that may actually bring more attention and popularity to their brand. In the battle to ship beers under the Dilly Dilly banner, it appears Bud Light has found a way to maintain their property rights without sinking their competitor’s business. I’d say that deserves a “cheers”, but perhaps the more appropriate phrase would be “Dilly Dilly!”

Stock You Like a Hurricane - When Price Gouging Won’t Fly under Severe Weather Conditions

In the wake of the devastation caused by Hurricane Harvey, many on the East Coast are watching closely to see where another powerful hurricane, Irma, will make landfall in the continental United States. These back-to-back catastrophes have created a unique situation in which many items considered necessities for surviving during and after such a storm are in short supply. In fact, in the wake of the devastation left by Harvey in the Houston area, many trucks in the southeast are being loaded up with water, diapers, food, and other items to help in the relief effort in Texas, further straining the supply of essential goods to the area that is about to be hit next. While shortages of essential goods have developed in many areas, there has been no shortage of articles written by economists describing how laws prohibiting price gouging lead to or exacerbate many of these shortages. For informational purposes, I’ll describe why this is in the following paragraph. What is even more interesting, is when we find examples of other economic forces at work that are largely being ignored in the other articles. In particular, this week several airlines announced that they would be doing quite the opposite of price gouging, by voluntarily capping the prices they are charging on flights to and from Florida during the evacuation effort.

Hurricane Irma Threatens Florida as People in its Path Prepare
(Photo credit: NASA/NOAA GOES Project)

Before we discuss the scenario with voluntarily capping airline flight prices, let’s first briefly examine the reason economists are so interested in price gouging laws to begin with. The reason most economists will argue against price controls of this sort that limit the maximum price that can be charged for a good, is that it prohibits the market from working to set the price that “clears the market” in a competitive equilibrium. That is to say, sometimes the price of a good needs to be very high before quantity supplied equals quantity demanded. If the price is below this point, people will want to buy more of the good (because people find it to be relatively pretty cheap) than is supplied (because many suppliers don’t find it profitable to sell a good for so few dollars). This inevitably leads to a shortage, and determining who gets the limited available quantity must be done in some other way than raising the price. One method of distributing goods in such a scenario is “queueing”, which is distributing the resource to whomever shows up first in line. If you’re worried about one person buying a lot of the good (stocking up on many cases of bottled water), instead of many people buying one case each, you could also try imposing limits on how many each person could purchase.

If you do limit the ability of prices to rise through anti-price gouging laws, most economist argue, you create two problems. The first is that people may overindulge in the artificially cheap good (stocking up on as much bottled water as possible), leaving very little or none for others (who may value it more) to purchase. The second problem is that the price gouging laws remove or decrease the incentive for entrepreneurs to transport much needed supplies to the affected areas from areas where they are more plentiful. Absent these laws, someone from Virginia may be tempted to purchase several generators and drive to Houston or Florida to sell them to people who are in great need of them, albeit at a higher price to cover their investment/expenditures.

Price Gouging Laws lead to Shortages of Many Essential Goods
(Photo credit: By Maksym Kozlenko via Wikimedia Commons)

What I want to discuss in this article, however, is not the typical price gouging scenario. Earlier this week, as predictions of Irma’s landfall somewhere on the Florida peninsula became increasingly more certain, evacuations began to take place. Then, something interesting happened. Airlines began advertising that they were doing two things. First, they were attempting to add as many extra flights as possible to get people out of Florida. Second, and somewhat surprisingly to many economists, most airlines announced that they were voluntarily capping the prices of their Florida flights at relatively low levels. While this may seem like an odd phenomenon to many, I would argue that the unique circumstances of these flights make the voluntary price capping a unique exception, and unlike other necessities like plywood, bottled water, and gasoline.

First, despite economists’ general agreement that prices should be able to rise (for the reasons discussed above), the general public tends to view large hikes in prices negatively. Thus, you may not expect many companies to raise prices by much during disasters, even if there is no law prohibiting it, due to the potential decrease in customer satisfaction. This doesn’t apply much to the entrepreneur who chooses to drive to an area to sell more generators, but it can be pretty damaging for larger companies whose reputation is on the line. Airlines have received a lot of negative P.R. already this year, and probably aren’t looking to add to it, even if they’re otherwise justified in their actions.

Second, while airlines are increasing the number of flights (and size of planes) to transport more people, there’s actually little room to temporarily increase the supply of seats flying out of Florida. One large barrier to increasing supply is the limited capacity of airports to have more planes at their gates. This means that even if the airlines charged several thousand dollars per seat, there just aren’t enough flights for it to have much of an impact on profits. When the airlines weighed the lop-sided risk of the costs of a potential P.R. disaster with a small bump in profits versus making a positive impression on the public and forgoing those profits, the choice is pretty obvious. When viewed in this light, it’s easy to see why airlines would publicly impose price restrictions on themselves.

Larger Planes and More Flights are Being Added to Help with Florida Evacuation
(Photo credit: Carla Thomas  via NASA)

The problems associated with price gouging laws are clear when applied to goods like plywood or generators, but don’t fit as well when applied to flights. It is much more plausible that someone would be incentivized to drive a truck full of supplies to Florida than to fly their small plane down, find a runway with available space, and find customers to fly out of harm’s way a few at a time. The limited ability to expand “production” of flights, coupled with the fact that a few large companies with a lot to lose control most flights, means that in this instance there’s no need for a price gouging law to limit prices. The major airlines have made a competitive and economic decision that, at least for them, price gouging just won’t fly.

Total Eclipse of Supply - Why are Solar Eclipse Glasses Impossible to Find?

America is gearing up for its first total solar eclipse in well over a quarter century, and there’s something strange going on near the path of totality. No, I’m not talking about the possibility of Lizard Man sightings during the eclipse, but rather the fact that there appears to be a shortage of the cheap disposable solar eclipse viewing glasses that are essential to wear if you want to look at the sun without permanently damaging your eyes. This article, from Denver, describes the difficulty that people from Oregon to South Carolina are experiencing in finding the glasses in the waning hours before Monday’s eclipse. I’ve discussed shortages before on this blog, so why is this one so strange/unexpected?

A total eclipse over the United States is a once-in-a-generation phenomenon
(Photo credit: NASA  via Wikimedia Commons)

The shortage of solar eclipse glasses is interesting because it should qualify as a relatively competitive market (many buyers and sellers; free entry/exit; etc…), and the product is relatively inexpensive and quick to manufacture and distribute. In addition, science allows us to predict future eclipses far into the foreseeable future, so it’s not like this event suddenly snuck up on everyone. Thus, despite there being no specific laws placing a price ceiling on solar eclipse viewing glasses (some states’ general price gouging laws could potentially apply, but I’m not aware of any being applied at this time), a shortage of eclipse viewing glasses has emerged. So, you may be asking yourself, what kind of factors would contribute to such an economic anomaly?

When a competitive market experiences a shortage, it usually adjusts for the disequilibrium created (quantity demanded > quantity supplied) by increasing prices until the market reaches equilibrium. This occurs because, as prices rise, more suppliers are willing to produce more eclipse glasses, and at the same time some consumers stop demanding pairs of glasses because the price gets too high for them. We expect this to take a bit of time to occur, but even if there were no additional time to produce more pairs of glasses the price of glasses should increase a lot until enough consumers drop out and there is no longer a shortage.

The path of "totality" stretches from coast to coast!

(Photo credit: Wikimedia Commons)

There are two interesting things that appear to be occurring with eclipse glasses. First, it appears that both producers and consumers may have underestimated the Demand for these glasses. This is likely do in large part to the rarity of total solar eclipses in the United States. It’s hard to predict the level of Demand without much historical data, especially due to the lack of eclipses that could be hyped up by so many internet and 24/7 news stories. When stores that don’t typically sell eclipse glasses (hardware stores, gas stations, etc…) were deciding how many pairs of glasses to order to stock their shelves, they seem to have preferred erring on the side of underestimating Demand. This makes sense; while eclipse glasses are relatively cheap to produce and store, their value drops to almost nothing after the eclipse on 08/21/2017. The next total solar eclipse in the US is not until 2024, and only overlaps with this year’s path around southern Illinois/southeast Missouri. That leaves a lot of stores across the nation that would have to store any excess glasses with very few potential buyers after Monday.

The second complication, that may be the most interesting to an economist, is that many groups began advertising several weeks before the event that they would be handing out eclipse glasses for free. Some were schools, museums, and other government institutions who may have been seeking to promote the “public good” by helping protect people’s eyes while encouraging people to pay attention to this scientific phenomenon. Others were retail establishments, including many optometrists, who used the free glasses as a form of advertising and a way to get potential customers in their doors. No matter their reasons, these free glasses seemed to have two effects. First, many suppliers knew they’d be trying to sell glasses against others who were giving them away for free, and so they logically ordered fewer than they otherwise would have. Second, many consumers (like me) heard that there were free glasses available, and chose to pass by those that were for sale in the store a few weeks before the eclipse.

Were you able to snag a pair of these stylish and necessary frames?

(Photo credit: nps.gov)

By the time everyone realized that Demand was much higher than expected, it appears to have been too late. No longer being able to find free glasses around town, consumers turned to the stores selling the glasses. Prices appear to have been a bit “sticky”, with the high Demand not being fully revealed to the stores selling the glasses until they had almost sold out. If they had raised their prices immediately only to find that Demand was low, consumers would have only bought from their competitors, and they would have been left with a large excess of glasses with no buyers.

One additional complication in this ordeal was the emergence of “fake” solar glasses sold on Amazon and elsewhere. Many people purchased glasses for themselves and their families only to be told that they may not be fully protected from the solar rays after all, and that they would need to find the “approved” version of the glasses. Whole counties even ordered and distributed these unapproved glasses! As any given person only needs one pair of approved glasses to view the eclipse, many people who would have otherwise been satisfied and not purchased more glasses at any (positive) price were now thrust back into the market to try to buy a pair of glasses in time.

We typically expect a market to self-equilibrate over time, unless some sort of barrier (such as a price control) keeps it from doing so. With the Great Eclipse of 2017, we can see that a confluence of unique circumstances has created a shortage of eclipse glasses that it appears will persist through the end of the phenomenon. With a little economic insight, we can “shed some light” on this mystery, just in time for Monday’s darkness.