Econ Soapbox Mailbox #1
Questions from readers about Costco, Realtors, and RFK Jr.
Below are a few questions from readers I’ve received recently. Do you have a question that you’d like me to answer? Send me a message and I’ll add it to the queue!
Still loving your newsletter. I would be curious about the economics of Costco.
They offer everything from optometrist appointments to wild caught salmon, milkshakes to oil changes.
What will they offer in 10 years? A movie theater, nail salon, and daycare for children whilst they shop? Maybe marriage counseling or financial planning workshops?
Would like to know where their best margins are, how that influences new product lines, and a prognostication of where that may lead these meccas of capitalism. And of course, have a little fun outside the realistic with that too.
I’ve written about Costco previously, most notably their hot dog policy. Costco is an economist’s dream. The size, the efficiency, the prices. It’s impossible not the respect what the company has created over the last 50 years. But what about the next 50? Where will they go?
It would be interesting to see them move into services, but I view that as unlikely. As the loyal Econ Soapbox reader above notes, Costco does offer some services, notably optometry and tire changes. However, their model is goods, not services. And even those services come with an asterisk. Costco does not employ any optometrists; they are independent workers renting the space from Costco. Additionally, Costco tire centers have moved exclusively to tires and have largely quit doing oil changes.
So while it would be interesting to see Costco evolve into a self-contained mall where one can get their nails done and drop off their kids while buying a 10-gallon bucket of mayonnaise, I don’t see that happening. Malls already do that, and they aren’t doing so well. Costco has discovered a very successful business model and is going to stick to it. Costco makes so much money because they are incredibly cost-efficient in selling goods. They buy items by the pallet, stack the pallets above shoppers, and then open them as needed. This brilliant use of square footage saves a lot of money. Walking into a Costco today feels very similar to walking into one 20 years ago. There are new TVs and rotisserie chicken and some guy trying to sell me new gutters.
It isn’t clear that they would be able to replicate these savings by branching into services. There aren’t clear gains to be had by moving a beauty salon into a warehouse. It would be interesting to see a vertical nail salon similar to the indoor driving ranges, with four tiers of nail technicians working across the aisle from pallets of brownie mix, but I view it as unlikely.
What is your take on the Missouri Realtor Lawsuit?
This is a tricky one. For those not aware, a potentially industry-changing verdict recently came down in Missouri. A jury there found that the National Association of Realtors (NAR) colluded with several large real estate brokerages, including HomeServices of America and Keller Williams Realty, to keep prices high.
The Realtor system certainly has some questionable practices. The standard system for a home sale is that the seller has to pay around six percent of the price, usually split roughly in half, to the agent of the seller and the agent of the buyer, respectively. This is unusually steep - most other countries have fees closer to 2-3 percent. Additionally, the comparative advantage of using a real estate agent has declined with the rise of the internet. Yet the high fees have persisted. This all provides evidence of price fixing. That said, after reading half a dozen articles on the lawsuit, I can’t figure out what proof there was of collusion between the various players. I’m not a lawyer and don’t want to read through case files, so if anyone can point me toward an article that explains exactly how NAR and the brokerages were colluding I'd appreciate it. Is the evidence of price fixing indisputable or more circumstantial?
Regardless, the $1.8 billion verdict is a big one. The judge could increase that number and could create new standards for Real Estate agents that apply to the entire country. That’s a big “could” however. Whether this will create a large shift in real estate agent commissions in the United States remains to be seen. Some commentators are saying this could cut fees significantly, while others seem confident it will change nothing in the short term. There are several other court cases still working their way through the system, so I think the jury is still out (pun intended), and prognosticators should wait before predicting the upheaval of an entire industry. Maybe agent fees will only be 3 percent in a few years, or maybe they will stay around 6 percent.
I'd love an opinion piece on [Robert] Kennedy's candidacy to gain a better understanding of why other candidates and, particularly, why the media are afraid of him. He doesn't get the coverage he deserves and should be able to play a role in the debates.
Long-shot White House bids often put the media in a bind. Ignore unlikely candidates, and you will get accused of carrying water for party insiders. Pay attention to them, and you will get accused of promoting a candidate that has little chance of winning. Fans of long-shot candidates will always claim the coverage is tilted against them, while opponents of these same candidates will wonder why they are getting any media time at all. Robert Kennedy, also known as RFK Jr., is even more difficult for the media because he is a Kennedy, who are uniquely positioned as one of the few remaining political power families in the United States. Additionally, he was originally running for the Democratic nomination for president when he announced his candidacy in April but has since switched to run as an independent. Is Robert Kennedy getting the correct amount of coverage, knowing that the “correct amount” is a subjective opinion? You could make an argument either way.
Looking at the list of 2024 presidential candidates, he certainly gets far more coverage than the other non-Biden Democratic candidates (Marianne Williamson and Dean Phillips) as well as other independent/third-party candidates (Cornel West and Jill Stein). He has also never held political office before, making his election highly unlikely. Some of his fringe views are also going to be wildly unpopular with the electorate, so that’s not going to help him either. That, along with the general Kennedy infatuation the media always has, would indicate RFK Jr. is getting too much coverage.
On the other hand, he is a Kennedy, and for better or worse Americans care a lot about the Kennedys. John Kennedy’s grand nephew twice removed could run for president and probably net over a million votes. Additionally, RFK Jr. is polling fairly well. One poll found he has the highest favorability of all candidates, and another found that 16 percent of voters support him. Sixteen percent is about half the support of Trump or Biden, so he’s not within striking distance, but 16 percent is still a respectable base. His views on vaccines also led YouTube to remove the video of his campaign announcement, which is downright Orwellian. One could argue, based on these facts, that the media is undercovering his candidacy.
At the end of the day, I think the media attention he is getting is in the acceptable range. One could reasonably argue for marginally more or less, but he shouldn’t get as much media time as Biden or Trump or be ignored entirely. His family name and double-digit polling and low likelihood of winning means he should be part of the conversation, but not as a main player.
As far as his appearance in the presidential debates, that’s a whole different question. As an independent, he wouldn’t be appearing on the debate stage for the Democratic or Republican nomination because he isn’t running for the Democratic or Republican nomination. Once the party nominees are set and the final round of debates happens in the lead-up to the general election, however, RFK Jr. could be part of the debates. the standards for the presidential debates run by the Commission on Presidential Debates are clear:
Under the 2020 Criteria, to receive an invitation to debate, a candidate must: (i) be Constitutionally eligible to hold the office of President of the United States; (ii) appear on a sufficient number of state ballots to have a mathematical chance of winning a majority vote in the Electoral College; (iii) have a level of support of at least 15 percent of the national electorate, as determined by five national public opinion polling organizations, using the average of those organizations’ most recently publicly-reported results at the time of the determination.
These seem like reasonable standards to me. So if RFK Jr. meets these three requirements we will see him on the debate stage this fall.
Do you have a question you’d like me to answer in a post? Let me know!