Simultaneity and Identification: Creatine
In his latest weekly column (Nov 13, 2007, mostly about sports but also with a good dose of economics) at ESPN, Gregg Easterbrook writes,
If the demand curve shifted leftward, it also seems that the supply curve could have shifted to the right. Either shift (or both) would cause the price to drop, but it would be incorrect to attribute the price decline to either shift alone without more information.
Economics note: As the sense that creatine possesses forbidden powers has declined, so has its price. Five years ago, General Nutrition Centers sold a canister for $100 or more; now, canisters sell for $25 or so.It looks as if Easterbrook is attributing the drop in the price of creatine to a decline in demand. But it is also quite likely that the high prices induced entry and increased competition among suppliers. Indeed, most websites devoted to body-building point out that there are now many brands and varieties of creatine to choose from.
If the demand curve shifted leftward, it also seems that the supply curve could have shifted to the right. Either shift (or both) would cause the price to drop, but it would be incorrect to attribute the price decline to either shift alone without more information.
Category: Economics, Sports Posted on
Friday, November 16, 2007 at 7:06am
<< main
But re: supply, since this product is supposed to be special, I'm willing o buy into a market power model, in which case the producer sets the price to maximize profit and cater to the demand at the resulting level. In this case, it makes sense to say that the producer decreased the price when the demand schedule shifted.
In this case, the market power scenario is less likely, unless someone patented that substance. Otherwise, people will simply advertise that their supplements contain it and the existing producers can do nothing about it.