Jerry Brito

Why is Southwest leaving money on the table?

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Southwest Airlines recently changed its famous seating policy by which I’ve always been fascinated. If you’re not familiar with it, what happens is that you are not assigned a seat when you purchase a ticket. When you check in at the airport (or online up to 24 hours before the flight) you are assigned a group: A, B, or C. At boarding time the groups are called in order and passengers seat themselves wherever they like. The change now coming into effect is simply that in addition to a group assignment, passengers will now also get a position within the group (i.e. A15, B32, etc.). Still no assigned seating, though.

The change is an improvement. What would happen before is that about an hour or more prior to departure, a line would start to form in front of the gate. Even if you had a group “A” ticket, you had an incentive to be the first in the group. The incentive was even stronger for “B” and “C” passengers because the difference between the first in B and the last might be having to sit in a middle seat or not. The new assigned line position will mean that people will now likely start to queue up about five minutes before departure, sparing us a waste of time.

Now, I think I understand why Southwest wants a no-assigned-seat policy. It creates an incentive for passengers to line-up in an orderly manner and board quickly (in order to get a good seat). As my colleague Drew pointed out to me, that is an airline’s dream. What I don’t understand is why Southwest leaves money on the table by refusing to sell to passengers the order of boarding. There’s clearly a market for this as websites abound that will charge you a fee to automatically check you in at the first possible moment (and therefore get you in the “A” group). If you have an idea why, let me know.

Oct 11, 2007 | Comment | Tags: markets, southwest airlines, travel

First world microloans

Awesome, awesome, awesome. The WaPo reports about Prosper.com, a site that connects individuals who need to borrow money with individuals who have money to lend. God, I love markets:

Lenders, who can finance small pieces of many loans, get a chance to earn higher returns than they might find elsewhere, but it’s not simply a numbers game. They get a borrower’s story, how much money they want to borrow, the interest rate they’re willing to pay, and the reason they need the money, along with monthly income and expenses. Often, pictures of borrowers, their dog or their children accompany the pitch.

According to the story, in one year the site has originated about $33 million in loans and less than 1 percent of its loans have defaulted.

Jan 29, 2007 | Comments Off | Tags: markets, microloans, prosper.com

For markets, for fair use

In an op-ed in The American today (and also in comments to National Journal on the reintroduction of the Boucher fair use bill), PFF’s Patrick Ross writes that those of us who advocate reversing the DMCA and strengthening fair use rights have little faith in markets. According to him, curtailing the DMCA means government intervention in emerging markets.

What arguments like Patrick’s ignore is that copyright is unlike other property rights, copyright is a different animal. This is evident in the fact that the power to create copyright is one of the enumerated powers of Congress laid out in the Constitution. Copyright would not exist but for the grace of Congress. If Congress decides to create copyrights, it has complete discretion (within constitutional bounds) to set the outlines of copyright. Congress can decide, among many other parameters, that copyright is for only one year or for 100 or for any length of time in between. Therefore, whatever market in copyrighted works emerges once Congress has created copyright, it must conform to the shape of the copyright Congress created.

Patrick writes:

It’s easy to forget that when we purchase digital content, we are in fact purchasing a set of rights to that content, rights shaped by current technologies, as well as the expectations of both creators and consumers. When those rights are sold to us, there are some uses that the creator does not authorize. As we discover new ways of using content, those uses begin with the creator, who can then decide the terms on which he wants to sell them.

As I have shown, though, the shape of these rights are not just set by contract, but by Congress as well. (The reason why is a bit beyond the scope of this blog post, but suffice it to say it’s because ideas, unlike tangible property, are not scarce, and copyright is less property right than government grant.) Patrick continues:

I can see why a consumer, having paid for a song or a movie once, wouldn’t want to pay for it a second or third time in order to use it on another platform. However, when the market offers sets of flexible rights, consumers will be able to buy only the rights they want. If you want to listen to music only on your home stereo, say, but not in your car, then in the future you may be able to pay less–you won’t have to buy (and then not use) the right to listen in your car, as you do today.

What Patrick is arguing against here is a notional fair use right to format-shift or place-shift. I wonder if he’s also against a right to time shift since you could contractually limit consumers to only watch your content from noon to one on Tuesdays.

Patrick writes that “Congress should only alter the state of a market when there is a sign of market failure.” Quite true. However, another legitimate rationale for Congressional intervention is government failure. First carved out by common law courts and later codified by Congress, fair use is one of the outlines of copyright. To the extent one has to circumvent an anti-copying measure in order to make fair use of a work, the DMCA has hobbled fair use (and, some free-marketers would say, replace it with rent-seeking and barriers to competition). Repealing the DMCA will affect markets for copyrighted works just as its enactment did. This is because, in effect, Congress shapes the market. It is within its constitutional power to do so. Those of us who favor a less-restrictive interpretation of fair use are in fact seeking more vibrant markets in culture.

Cross-posted at TLF. You can leave and read comments there. →