Breaking Bad: Folk Economics & the Blue Persuasion

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Like with any movie or T.V show there are always concepts, messages, and over-arching themes that the creators consciously or subconsciously throw in for us to ponder and wax-intellectual about (or idiotic pending you’re perspective) if we so choose. I do prefer to wax-whatever about this stuff because it’s fun, and is especially so when we are dealing with the combined topic’s of meth, economics, consumerism and one of the best shows ever made: Breaking Bad.

After re-watching season 5 before the new episodes of season 6 came on last night, the one question that  kept coming back to me was; could Heisnberg (Walter White) really gain an edge by selling premium meth to addicts? You too are probably wondering; does it really make sense that Walter has positioned himself as the Versace equivalent of meth? Wouldn’t the desperate toothless junkies just settle for any high? These are interesting questions not only because we are dealing with an illegal retailer/business, but also because we are dealing with a different type of consumer culture. There is no doubt that the show’s creator Vince Gilligan has cut some logical corners to make compelling and entertaining television, but when we take a look at the logistics, the economics are sound. It’s the chemistry that is the shady part about the whole premium meth angle.

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The basic shape of the problem comes down to applying regular consumer behavior to that of the criminal underworld and its culture. For example-and for fun-, let’s say some regular bored suburban 60 year old man decided; that after a morning of reading the editorials, having his wife make him watch The View with her, and yelling at his neighbors for letting their dog treat his yard as if it were the shit-O-lympics, he wanted to score some good O’l methamphetamine. Let’s say then this 60 year old man walked down to where all the meth addicts hang out where he then sampled the product, and decided that the quality didn’t past his expectations. He then chooses to confront his supplier about it, much as one might complain about the purchase of any kind of good or service that didn’t meet reasonable standards of quality. The problem that arises is that meth is a bit of an unusual product in that it’s typically sold by badass violent criminals. Complaining to the dealer would not reap a refund. It would more likely get the consumer in this nature either:

1. Stabbed (repeatedly)

2. Shot (repeatedly)

3. Laughed or mocked at (repeatedly)

Number 3 would most likely come first followed by a combination of 1 and 2, repeatedly.

Essentially, complaining to your meth dealer about the quality of service or product isn’t the same as complaining to that college grad behind the Wal-Mart customer service counter.

However, meth addicts are real people too and they are consumers just like you or I, it’s the context of their environment to which changes the game a little bit. Meth addicts want a quality product just like any other consumer in the world, and they would be disappointed if they didn’t get as such. So in a basic sense there’s no reason that better meth couldn’t get you better market share. The problem is that it’s difficult to be credible while operating an ongoing criminal scheme. Even if fans of meth prefer high-quality meth to the terrible, they may not be able to come across it—and when disappointed, they have little recourse. That’s the problem for addicts, but also for the rest of us. Information about quality turns out to be a severe challenge for the organization of significant markets. The most basic economic models deal with this by stipulating that the market under consideration features what is called “perfect information”. This means, both buyers and sellers know everything there is to know about product quality.

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Furthermore as example, a person selling a car is intimately familiar with the product. The buyer is going on casual inspection and a test drive. Subsequently, the seller has incentive to mislead the buyer about product quality. The critical fact, however, is that the customer knows this and is bound to discount the used-car salesman’s claims. The problem here turns out to be not just that customers might get ripped off, but that customers’ fear of being ripped off means that nobody will be eager to pay a premium price for a premium product. If you want to make money selling quality, it’s not good enough to have a good product. You also need to convincingly signal to your customers that you’ve got the best product.

Once they’ve come to your product, you can manufacture credibility and favorable word of mouth. In the real-world you can also rely on regulation by governments. Companies generally don’t like it when the government sticks its nose into their business, but the existence of the FDA (Food &Drug Administration) gives consumers confidence that they can buy the Zoodles and Ramen Noodles on the shelf in the supermarket without fear of disease from deadly microbes lurking within. The problem, meth-wise, is that obviously the FDA isn’t going to come to your covert meth lab and certify the safety of your totally awesome product.

This is where Mr. White’s secret weapon comes into play: Branding. In markets where regulation isn’t present or credible, brand identity is the best reassurance of quality. Overcharging you for a stupid phone that can do all the same things as another phone might be a smart one-off business strategy, but a firm with a brand label to support it (*cough Apple) has an incentive to deliver on promises of quality. That’s one critical reason why legal products have labels plastered over them and marijuana is heavily branded in places where it’s legally tolerated. In the real-world market for meth, heroin, and cocaine, by contrast, purity tends to plainly depreciate the further away you get from the nations border. Smuggling is friggin hard work, so dealers sneak the purest possible product past Immigration and Border Enforcement Officer’s inquisitive eyes and then dilute it as needed for distribution into the U.S for example. But what if you’re Über -pure, locally sourced meth was manufactured by a special process that lends it a distinguishing blue hue? Well, that’s a game-changer; Instant branding. And even though the brand isn’t ultra-flashy, it’s got something way more vital than that: credibility.

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As such, charging a premium price for a premium product should be no problem. Alternatively, if the product can be produced at large scale (the fundamental drama of the show), it will undercut all rivals and gain massive market share. This doesn’t work in the real world, but that’s just because the chemistry of meth manufacture doesn’t support the scenario. The economics are just fine.

The only problem for Walt now in season 6 are that his use of folk economics seems to be catching up with him; like it has with countless other entities throughout history. The reason being is that Walt now has a veritable monopoly on the meth market after season 5.

Here is a brief breakdown of the situation: Walt, after vicariously eliminating three layers of competition, has a monopoly — so now his plan is to increase the price. This usually plays out well in the short-run, but definitely not in the long-run. Folk economic beliefs overlook that long-run consequence. Vicariously eradicating two layers of competition by liquidation is a form of raising costs and reducing profitability for others. What keeps out new competition is the signal that potential future profits are low, thus the market not being attractive to invest/get into. However, Walt is going to intentionally muddy this by raising prices, signaling higher potential profits and encouraging new entrants into the market.

This is going to go badly. Of course, not having it work out for Walt (and his blue-baby) might be a story arc for the show since this is the last season. We shall soon find out!

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