Wednesday, September 5, 2007

Ketchup Economics

Today's post is about what is, in my view, the most important sub-field of gastronomic economics: the economics of ketchup. An excellent survey was written in 1985 in a top journal by Larry Summers (Harvard economics professor, former Secretary of the Treasury, and former President of Harvard). In his article (link here for those with JSTOR access, citation here or here), Larry summarized the main findings of ketchup economics as follows:

Nonetheless ketchup economists have an impressive research program, focusing on the scope for excess opportunities in the ketchup market. They have shown that two quart bottles of ketchup invariably sell for twice as much as one quart bottles of ketchup except for deviations traceable to transaction costs, and that one cannot get a bargain on ketchup by buying and combining ingredients once one takes account of transaction costs. Nor are there gains to be had from storing ketchup, or mixing together different quality ketchups and selling the resulting product. Indeed, most ketchup economists regard the efficiency of the ketchup market as the best established fact in empirical economics. (Summers, p. 634, again full citation here)


Personally, I feel that ketchup economics - while interesting and important - has received too much attention relative to other relatively under-studied fields in gastronomic economics (e.g., restaurant economics). Still, in the wake of the popularity of Freakonomics it should come as no surprise that a piece by Malcolm Gladwell about ketchup aimed at non-economists garnered so much attention. Given the interesting and thoughtful articles that Gladwell has written about the economics of other fields such as SUVs and moral hazard in health insurance (both articles I have assigned to my students), it is disappointing that he seemed to miss so completely the importance and subtlety of ketchup. I would throw tomatoes at him, but as an economist I just can't bear to waste such a valuable asset.

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