Behavioral & Game Theory · Gus · Hank

Who Was Gus Fring?

Gus Fring confuses the DEA chief, George Merkert, because when he invited him over to his house and Fring seemed like a good person. However, it turns out that people can hide who they really are and appear to be what others want them to be. Fring knew the entire time that he was manufacturing large quantities of methamphetamine and yet he was having dinner with his potential captor. This clip represents a starting point for a discussion about asymmetric information, which occurs when one party holds relatively more information about an exchanged good.

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Labor · Supply and Demand · Walter

Why Crime?

Walter has found a new friend in Gale and is surprised that a well-trained chemist decided to become a drug producer. The two of them aren’t the most obvious criminals. Gale believes his importance in the process is to help people get a clean product. Addicts will buy drugs without knowing what’s in them (asymmetric information), but at least Gale’s product is pure.

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Market Structures

Bulk Discount

An illegal arms dealer is selling the criminal twins some bullet-proof vests. As other entrepreneurs, his profit-maximization incentives push him to offer bulk discounts on guns. Bulk discounts are a popular form of price discrimination to incentivize buyers to purchase more products than they may have originally intended.

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Jesse · Macroeconomics · Money

Up for a Trade

Jesse visits a gas station and, after filling up and asking for a pack of cigarettes, he realizes that he has no cash on him. He proposes a trade; a little bag of “blue” methamphetamine against the gas and cigarettes. After hesitating initially, the cashier accepts the trade. However, for the trade to take place, a mutual coincidence of wants must emerge. It does in this case. Also, note that the cashier accepts the methamphetamine under the false belief that it does not create addiction.

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Behavioral & Game Theory · Market Structures · Saul

Meth Lab in the Basement

Controversial lawyer Saul Goodman is trying to buy back Jesse’s house. Negotiations start and seem to unfold well until the parties disagree about the sale price. The couple ask for $875,000 but Saul’s client offers only $400,000. The couple and their counselor feel offended by such an offer and, while mentioning that the meeting was a complete waste of their time, start walking out of the room. They stop once Saul mentions the methamphetamine laboratory that used to be in the basement. This unpleasant, but key attribute is purposefully hidden from the buyer to keep up the value of the house. However, in this case, the prospective buyer seems to have done his homework. Unfortunately, in many of today’s transactions, the information held by sellers is not available to buyers and vice versa. In cases where such information gaps persist and are systematic, markets unravel and ultimately fail.

Also, note that upon introducing himself, one of the sellers immediately recognizes Saul as “the lawyer on late-night television.” This is because of his catch-phrase “Better Call Saul”, which is present in all ads involving his business. Differentiation is a key feature of markets in which many of today’s sellers and buyers interact. Together, these traits outline some characteristics of monopolistically competitive markets.

Finally, it is worth mentioning that Mr. Gardiner, the couple’s counselor, is ardent to get right to business. This leads Saul to remark, “I get it. Flat-fee clients, am I right?” This arrangement incentivizes Mr. Gardiner to service his clients as fast as possible and therefore maximize his hourly pay. The more time he spends with his clients, the lower his hourly pay (since it is a flat charge), and the higher his opportunity cost.

This description comes from Duncan, Muchiri, and Paraschiv (Forthcoming)

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