My recent post on bicycle inflation in Portland has touched off an unexpectedly spirited and, I think, fascinating debate—both on the Freakonomics board and in separate posts from bloggers and journalists, many of them from the Portland area, including Joseph Rose at the Oregonian. Interestingly, most of the responses have focused solely on my discussion of bicycle prices in Portland, and not on my more central observation that there might be evidence of an inverse relationship between the price of used bikes and the price of used cars in major US cities.
Many have written to corroborate my claim that used bikes are unusually expensive in Portland, while many others have disputed it, citing evidence of cheap bike-swap shops and some inexpensive bikes on Craigslist. On that point, it is important to note that I was measuring median prices, from a sample of 50 data points in each city, in order to offer a rudimentary hypothesis about trends in the market as a whole. To cite as a counter-example the mere fact that there are some cheap bikes for sale is to miss my more general observation of the relative medians and of the car-bike relationship in various cities.
This relationship, as supported by my extremely preliminary evidence, seems to suggest that in bike-friendly cities like Portland—cities in which a higher proportion of bikes are being used for commuting and transportation, and not just for leisure—bikes and cars are functioning more like substitute goods than they are in other cities; there may be, in such cities, an upward pressure on bike prices and a downward pressure on car prices. This is hardly a ground-breaking idea, but it’s a phenomenon that could merit further investigation as we consider ways of reducing emissions and gasoline consumption.
Last time I was in Copenhagen—one of Europe’s most bike-friendly cities—free one-speed public bikes were available to all; you’d insert a coin into the bike when you removed it from a rack, and you’d get your coin back when you redeposited the bike elsewhere in the city. (A while ago, I’d heard that the bikes were being manufactured by inmates in local prisons, although I don’t know if this is still the case.) This system has been employed in other cities, too, with some success. I’m sure that such free public bikes are of the very lowest quality, yet their existence creates a biking opportunity to those that cannot afford more expensive bikes. In that case, bikes are probably functioning less as a substitute for cars and more as a substitute for buses or other public transportation, so the benefit of that trade-off might be questioned. However, it is well established that—as far as health care costs borne by the public are concerned—it is in society’s best interest for its citizenry to get more exercise.
Perhaps the most interesting debate, though, has been over my use of the term “moral/aesthetic” to describe the social norm in Portland that pushes bike prices higher. That statement has been criticized by some commenters as (in Mr. Rose’s words) “skidding away from Economics 101,” a notion that’s fueled, presumably, by the idea that I’ve strayed from the assumption that in equilibrium, goods with higher market prices are understood to be of higher quality—and that it’s because of a better understanding of quality, not a moral choice, that people in Portland are spending more on better bikes.
First, it is important to note that I acknowledged that the Schwinn at Costco was a technically inferior bike—an acknowledgment that Mr. Rose noticed, but some others seemed not to. I wrote: “I don’t doubt that the Schwinn Midtown is a far inferior bike, from the point of view of a bike connoisseur, to whatever’s being sold used in Portland.”
But it’s also true, in another sense, that I have skidded away from Economics 101: it is becoming increasingly clear, from evidence in neuroscience and elsewhere, that more complicated our economy becomes, the less accurately that page of the introductory Economics textbook describes the average consumer’s ability to perceive the quality difference between the Schwinn and the Trek. In an experiment I conducted last year, about two-thirds of 62 consumers preferred an $11 Domaine Ste. Michelle Brut sparkling wine to a $150 bottle of Dom Perignon.
The more we look at the marketing strategies adopted by the modern manufacturers of luxury goods like wine, automobiles, and even five-bladed razors, the more we see the manipulation of social norms substituting for real product development, and the more we see companies’ cost bases shift toward advertising and away from R&D. The more we look at the information intermediaries on which we are supposed to rely for the unbiased expert judgment of those goods, the more we see pay-to-play “ratings” schemes like this and junketeering like this substituting for real judgment, propping up the prices of luxury goods whose counterfeits consumers often can’t distinguish from the originals.
The central element of the debate, then, might be boiled down to the question of how comfortable we are with the notion that market prices are so heavily influenced—not just at the top end, but at the bottom, too—by the minority of connoisseurs that probably can tell the difference between the $500 bike and the $1,000 bike than by the unsophisticated evaluations of everyday consumers that probably can’t. Freakonomics poster Andromeda writes:
[W]e’re not just talking about moral/aesthetic differences here (although some bikes *are* sexy). There are big differences in the feel, comfort, and speed of different bikes, and if you’re biking as much as people in Portland apparently are, it becomes seriously worth it in terms of quality of life to shell out extra money for a lighter frame (the big expense), more ergonomic and/or durable shifters, more energy-efficient pedals, a more comfortable saddle, et cetera. The price range of bikes I’m interested in considering has crept up as I’ve become more serious and knowledgeable about my biking, and yeah, part of that is drooling at the sexy, but most of it is knowing how I use my bike and what will maximize my happiness and efficiency given those uses. (And most of these are things that were *not* apparent to me before I’d put a few thousand miles on my bike.)
Sexy—or sex, at least—is something real. We can all tell the difference between when we’re having sex and when we’re not. It’s easy to detect sex appeal, our at least our individual versions of it. I’m confident that when it comes to brakes and pedals, the bike aficionados who commented on my article can tell the difference between a great used Trek and a crappy new Schwinn. But I’m also confident that there are a lot of people that can’t. That’s not to say that the fragile egos of the unsophisticated consumers don’t also figure into the social norm that we should buy better bikes, as they figure into the social norm that we should buy better wines. People are insecure about their preferences, and for the wine collectors that really can’t tell the difference in blind tastings, buying Château Lafite isn’t a mere act of self-delusion; it’s a social act, a way to fit in with the better bikers, a way to feel a part of it all—and evidence indicates that they get placebo pleasure from the act, too. But placebo pleasure seems to come from the relative price of a good, not its absolute price.
And there are also those that don’t fit that placebo profile. Mr. Rose writes that “[to] buy a shiny new $200 Schwinn over a used ride with solid bones and newer components is like buying a $60 Costco guitar expecting it to stay in tune and sound like a Martin.” But where does he get the idea that they’re expecting it to sound like a Martin? Where does he get the idea that they even know what a Martin is supposed to sound like?
If there is a place for the Costco guitar, isn’t there also a place for the $50 used bike, which seems to have all but vanished from Portland? The bike that you know isn’t in tune, but you don’t mind? The bike that someone who can barely afford a bike is buying not as an alternative to a more serious commuter bike, but as an alternative to nothing at all?