Fair warning: this post isn’t about anything in the news, or even anything particularly liberty related. This is just some economic musings about the motorcycle I just bought. I feel pretty darn free when I ride it, but ultimately this post is just (“just”) economics and just (again with that “just”) for fun.
When I got my bike, the mechanic I bought it from suggested that I get the oil changed every 3000 miles. The owner’s manual suggests 8000 miles. The first number feels a bit like when you leave the dentist’s office (“We’ll see you in two months for your next check up!”). It’s obviously in my mechanic’s interest to have a steady income, and an oil change is an easy job. On a machine that can be replaced for $4000, it’s a much more certain income than if I trash the engine and just buy a new bike. So is he just profit maximizing?
What about Honda’s number? What do they want? If they wanted my bike to last forever, they might say something like 3000 miles, but they also want me to buy a new bike at some point. But that isn’t all they want. They want me to enjoy my bike enough that I buy another Honda. And they want a reputation for selling reliable machines. And they want a healthy used bike market to bring in new riders (like myself… I bought a used Honda Shadow). On the one hand they want my bike to eventually die, but they want it to go in such a way that I’ll go back to them for my next bike. On the other hand, they want their bikes to last longer than their competitors. So it’s some form of oligopolistic competition on a non-price margin.
If it’s a Cournot-Nash equilibrium (and all manufacturers have about equivalent quality), then by suggesting 7000 miles their bikes would last longer, bringing new riders to the Honda fold, but reducing demand for new Hondas. If they suggest 9000 miles, riders will need new bikes sooner, but reduced longevity would reduce demand by a greater amount. The implication: I should change my oil more frequently than 8000 miles.
If it’s a Bertrand equilibrium, then they’ll give it all away to the consumer implying that 8000 maximizes my experience. But then competition among mechanics must be Cournot (unless the conditions in Lubbock are really awful)! When I took my industrial organization class, as a young libertarian economist-in-training, Bertrand was appealing (“companies always have our best interests at heart! See, they strive for the lowest price by assumption!”), but not terribly compelling. There are two lessons here: 1) Bertrand is taking the easy way out of our critics’ questions and will hurt us in the long run (take note fellow econolibertarians!). And 2) static/neoclassical economics, useful though it often is, doesn’t get us far enough: study your Austrian economics!