Super Speedy Cider Squeezy 6000
In one recent episode of My Little Pony: Friendship is Magic, “The Super Speedy Cider Squeezy 6000”, the writers of the show delved into economics more than in any prior episode. They did a good job making the episode consistent with economic theory, although the ending was less happy than the typical episode.
The citizens of Ponyville live a idyllic life, free to pursue their favorite pastimes. Nopony ever goes hungry. While there are rich ponies, nopony is poor. Other than a few curios, there is no mechanization, no firms, and no other elements of a modern economy. With the Pegasus ponies controlling the weather, there is no danger of famine. Ponies typically have small families, so they are never hit by a Malthusian trap, which is where there aren’t enough natural resources to support all the ponies. War is almost unknown, except in ancient history. Government is minimalist, with a monarch (and her sister), who rarely do anything without consensus, but who maintain power by their god-like magical abilities. While Equestria is often attacked by various supernatural creatures, all repairs are always complete before the next episode, with only minimal grumbling.
Sweet Apple Acres has a monopoly on apple production, and restricts the quantity of cider to extract rents, much to Rainbow Dash‘s chagrin. Sure, the Apple family makes a show of working hard, but the truth is, which becomes apparent later in the episode, they could hire additional workers to meet the demand if they really wanted to. It is unclear why they didn’t increase prices to help reduce the shortage, but it probably has something to do with fairness norms. The underpricing led to misallocation – because the Apple family didn’t charge enough, Pinky Pie drank 10 mugs of cider and Rainbow Dash got none. Note that if Pinky Pie had known that Rainbow Dash wanted cider, she would have shared, but she didn’t because of imperfect information. Higher prices would have resulted in a more efficient allocation, even without Pinky Pie having knowledge of other ponies’ demand curves.
Flim and Flam, two Unicorn ponies, show up with their invention, the Super Speedy Cider Squeezy 6000, which promises to expand output to eliminate the shortage. Flim and Flam offer to vertically integrate, but demand a 75% cut of the profits, which is unacceptable to the Apple family. The Apple family could simply monopoly-price the apples and still restrict the quantity of cider, but doing so would expose their charade of “not being able to make enough”.
Having reached a gridlock, Flim and Flam offer to have a contest to determine who will get the cider monopoly. They think that with their superior technology, they will be able to outproduce the Apples. With their whole stream of future profits on the line, the Apple family recruits the protagonists to help with production. With the additional workers, they are able to produce cider faster than Flim and Flam, even using their outdated capital. Flim and Flam decide to sacrifice quality for quantity and manage to win the contest. However, nopony wants to drink their low-quality cider, so quantity demanded falls to zero, and Flim and Flam decide to exit the market entirely.
To a normal viewer, the episode had a happy ending, with everypony learning that you shouldn’t sacrifice your standards, etc, etc. To an economist however, the ending was less than optimal. Even in a monopoly, cost reductions translate to increased quantity and lower prices. If Flim and Flam had made a better initial offer, the Apple family would have been able to get more profit, make more cider and lower prices. If Flim and Flam had opened a competing firm, they would have reduced the Apply family’s profit, but the increased quantity and reduced prices would have raised total market surplus. In the end, Ponyville returned to an inefficient monopoly with outdated capital and no new gains from trade.
Comic by emlan