Ice cream economics

Economics always writes the denouement.

The hate media?

Der Stürmer perhaps, the Nazi newspaper of the 1930s?

No, Bob Brown was talking last year about The Australian. What you see obviously depends on where you’re sitting. When I look at The Australian I see the oft-charged conservative rag as a middle-of-the-road quality newspaper. I personally yearn for something a little more to the right. Bob no doubt sees the Green Left Weekly hitting the spot.

Whatever are our personal perspectives, News Limited seems to have got it right. Its newspapers have healthy profitable circulations despite the internet. Fairfax seems to have got it wrong.

Like any product, The Australian is successful because it is aligned with the broad national market that it is aiming to serve. It is not aiming to serve a niche market of people who think like me or, even less so, people who think like Bob Brown.

There is a simple model in economics which explains why successful businesses selling particular products into a broad market tend to group together both geographically and, by extension, in other ways, including by matching the attributes of their products.

The model consists of two ice cream sellers on a long stretch of beach. Acting rationally, they will both end up more or less together in the middle of the beach because it is only at that point that there is no advantage in either one moving. They would also both be careful to sell vanilla ice cream and other common flavours, lest they lose out to the other.

Assume we have an eccentric or recalcitrant ice cream seller who insists on staying, shall we say, on the left-hand side of the beach and selling only flavours favoured by a fraction of potential buyers. Now this ice cream seller is likely to go broke; unless, of course, he is aiming, and is set up, to serve only a niche market.

It is clear enough that the employees of the SMH and the Age are akin to failing ice cream sellers. They want to appeal to the broad market but refuse to move to the centre of the beach. Moreover, they seem inclined to blame the market for not appreciating their product. Their flavours are good for you and only dolts would be reluctant to travel a distance leftwards to savour them. It is understandable. They are the wisdom keepers. Why should they sully themselves to appeal to the common folk some of whom do not even believe in catastrophic global warming.

Enter a rich part owner of the business who might want them to make a product that people will buy. Oh what dastardly deed is that? What interference? It is not our fault that the business is worth a tenth of its former value; it’s the people’s fault for not clamouring to buy our product. Our editorial independence is sacrosanct. We have a right to be paid to go on writing and printing stuff that people don’t want to read.

Try to imagine any other business where the owners and directors pledge to have no say in product design. Where the employees form a likeminded clan; adding to their number only those of similar mindset; all intent on producing something which is sending the business broke.

Economics is a cleansing irresistible force, however much unions and journalists might rail against it. In the end it rids us of the ossified, the effete, the timeworn, the outdated, and the ice cream sellers on the far side of the beach. I saw a Fairfax sub-editor on TV explaining with evident incredulity how his twenty-plus years of service might be ending. That same sub-editor would have no doubt covered many stories of failed businesses during his tenure – without connecting the dots. 

Visit Peter Smith’s website badeconomics.com.au 

Peter Smith is the author of Bad Economics (Connor Court). You can purchase copies (post free) here…

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