Thursday, October 2, 2008

Plan B

It’s days like today when you wonder whether there is an urgent need for a Plan B. Markets are crashing, performance has s&#$ked, clients are screaming on the phone and, yes, people are now getting fired. No, not Lehman’s, nor Wachovia, nor those other guys across the street.. This time is our own very offices being cleaned up.

So I’m sitting with a colleague pondering on the alternatives… New York on $10 a day? Hmm, some brave ones have tried this before and lasted... a week! Not to mention of course that there’d be still a rent to pay, a doorman to tip and that irresistible key-lime mini cheesecake at Magnolia Bakery for $4.50 a piece!

Move to a Mediterranean isle and dedicate myself to producing olive oil? An enticing thought no doubt—staples should outperform in a global downturn after all. And then you have those heavenly beaches to relieve the stress after a wearying day of fierce tree-shaking to bring the olives down for collection… And those fig trees.. and the grape vines.. the fresh fish…

Just as I was pondering on my comparative advantage in tree-shaking, I get an email… “Maria Sharapova could be yours for a cool $10,000! ” No, no, don’t get me wrong! Here is the idea: If Maria Sharapova can auction herself and fetch a dinner date for $10,000, then…me...?

OK, I’m no Maria Sharapova… but, sorry, Maria Sharapova is no Chevelle either. I mean, let’s talk comparative advantage here. And I do mean comparative advantage. Sure, my serve is a joke. But dinner is not (all) about serving.. There’s that (home-made) olive oil, the figs, the table manners, the repartees… on the future of the dollar, no less! Besides, I look (almost) as good in a tennis skirt, thank you very much.

So now that we’ve established I can put a “dinner-with-Chevelle” up for auction, the burning question of course becomes what type of auction! Of course I want to fetch the highest price. But that’s not enough; I also want to make sure I get a fair price.

So here is where Sharapova (can I call you Maria?) got it wrong. Maria put herself up on an “ordinary” auction, whereby the buyers compete for whatever is up for sale—be it a Picasso painting or dinner with a blonde. Problem is, the price you end up getting will depend on who is in the pool of buyers at the time of auction.

For example, the auction’s winner might have been willing to pay far, far more than $10,000. I mean, she is a hottie, with long legs and the enviable title of ex-No.1 tennis champ, so arguably $10,000 falls way below her fair value Yet the guy got a bargain, likely because $10,000 already hit the bounds of the available competition’s “reservation price.

So here is my approach: A reverse auction! Very much in fashion after the Paulson bailout plan, it’s also a way to obtain a fair price. This is how it goes: I offer a price—obviously one in line with my sense of my intrinsic value. Other “sellers” offer a price too, for their own dinner-date. Of course, since each one of us does want to win, we won’t be making any extortionate offers--that is, way above our sense of market value. So potential buyers out there get the best price, and a fair one for that matter.

What?? You don’t trust my price? My sense of my own intrinsic value? Sorry, but if you trust Goldmans & co. using their obscure, in-house econometric models to put a price for the illiquid garbage they are about to sell to the government, surely you can trust my price for a “commodity” that is arguably far more liquid and certainly less toxic!

Wall Street men and women unite… there is a business opportunity here. And, by the way, I do mean dinner!

Glossary: auction, reverse auction, reservation price, olive oil, Maria Sharapova

1 comment:

Anonymous said...

Vive le difference!!!

I would suggest that you look to a slightly different thought process, given the paucity of responses on this post.

Too bad I am married and live far far far from New York.

But I am an economist;-}

Citizen AllenM