Marginal Revolution

Why are Hollywood Unions Powerful?

Alex Tabarrok

Glen Whitman asks a good question, Why are unions so powerful in the entertainment industry when unions are generally weak and in decline in most other sectors of the economy?  (Tyler asked the same question several years ago.)

I went to the family expert, my brother the movie producer and he had this to say:

...unlike in most other unionized industries, it's the INDIVIDUAL members of the unions in the entertainment industry that the management / owners want to work with. For example, Tom Cruise is a member of SAG, (I use him as an obvious example, but every other known actor is as well) and if the studios and producers want to make a film with Mr Cruise, and we all do, we have to come to terms with SAG. Similarly, Steven Spielberg is a member of the DGA, same issue. Though writers are not household names, it's the same issue, there are specific individuals who the studios want to be writing their TV shows and screenplays.  It  doesn't matter if Joe or John or Mary is stacking the boxes, flipping the burgers or ringing the cash registers so management can easily hire a non-union member to do the same job, in the film business we need to work with specific individuals who happen to be union members. Thus the power of those (comparatively) few empowers them all.

Combine with a bit of Hollywood leftism and the fact that the big names don't lose much from unions and you have a very powerful cartel.  About the only way to break the cartel would be to turn the big names into owners - this has been done a few times but the stars earn so much anyway that even then the incentives to deviate are small.  You Tube can give is a parade of amateurs but as soon as the amateurs become stars this model suggests that they will be co-opted into the union framework.  Like my brother, I don't see the power of Hollywood unions ending anytime soon. 

Arnold Kling on compensation

Tyler Cowen

I have a very different approach to compensation. I think that the key is to change compensation schemes frequently. The reason is that any scheme can be gamed, and the longer you wait to change any given scheme, the more effectively the participants will have gamed it. That is one reason I think that "Pay for Performance," the newest miracle cure for health care costs, will fail miserably. The doctors will be able to run circles around the bureaucrats. In the U.K., they already have--all of a sudden, 91 percent of doctors were receiving bonuses for being above average.

I think that the more Washington tries to regulate CEO pay, the more it will create a disconnect between pay and performance. Regulation will inhibit companies from frequently changing their incentive systems, and that will give CEO's more time to game them.

Here is the full post, which also covers Tim Harford's forthcoming The Logic of Life, which you'll hear more about in due time (it carries a blurb and recommendation from yours truly).

The economic consequences of Mr. Bush?

Tyler Cowen

Joseph Stiglitz writes:

You'll still hear some -- and, loudly, the president himself -- argue that the administration's tax cuts were meant to stimulate the economy, but this was never true. The bang for the buck -- the amount of stimulus per dollar of deficit -- was astonishingly low. Therefore, the job of economic stimulation fell to the Federal Reserve Board, which stepped on the accelerator in a historically unprecedented way, driving interest rates down to 1 percent. In real terms, taking inflation into account, interest rates actually dropped to negative 2 percent. The predictable result was a consumer spending spree. Looked at another way, Bush's own fiscal irresponsibility fostered irresponsibility in everyone else.

Stiglitz seems to claim that Bush will go down with a lower reputation, in economic terms, than Herbert Hoover.  I have not been a huge fan of Bush's fiscal policy, but I can add: a) Bush is not to blame for loose Fed policy, b) it remains debatable among honest Democratic economists whether loose Fed policy was bad, c) U.S. consumption has been robust for a long time, and d) changes in real interest rates do not explain much of the variation in private consumption, and that's even assuming you manipulate the ex ante vs. ex post distinction to suit your convenience.  The first two sentences of this paragraph are plausibly true but then the text deteriorates rapidly and is determined to blame as many things on Bush as possible.  The paragraph ends up attacking Bush for promoting a "consumer spending spree" when Stiglitz had started by arguing for traditional Keynesian fiscal stimulus, the purpose of which is to promote...a consumer spending spree.

Stiglitz also argues that Bush is in large part (he won't say how large) to blame for high oil prices.  In his view the war in Iraq led to political instability and stifled investment in the region, I say that Saudi oil wells are running dry anyway and increased demand -- most of all from China -- is the fundamental issue.  Note also that for many plausible parameter values, political instability leads to more pumping today and thus lower prices; the counterweighing cycle of less exploration and exploitation can take a long time to kick in.

It's also worth noting how much the arguments run counter to Stiglitz's own (earlier) writings on macroeconomics.  He used to preach that a) banks are excessively reluctant to lend to risky borrowers (compare to his discussion of the subprime crisis), b) changes in real interest rates generally don't matter much, c) adverse selection makes it hard to sell non-transparent assets for a reasonable price (compare to his discussion of securitization), and d) we cannot expect monetary policy to be especially effective but rather we must focus on the extent of credit rationing.  Stiglitz of course has the right to change his mind, but if the shift is so big surely this is news.

There are many good arguments against many of Bush's economic policies, and many other arguments which are maybe wrong but at least plausible or possibly true.  But essays such as this are not promoting the public's understanding of economics.

The pointer is from Mark Thoma. 

A superb post on exchange rates

Tyler Cowen

Here, by Menzie Chinn.

And here you can read Bob Solow on Greg Clark for $3.  Here are Solow's tips for time management, interesting but obviously not written by a member of the email generation.

Here's an update on the forthcoming Malcolm Gladwell book.

Why arranged marriage is costlier than you might think

Tyler Cowen

...when parents are involved in mate choice, sons are significantly less likely to marry college-educated women and women engaged in the labor force, after controlling for individual and family characteristics. I show that these effects are driven, at least in part, by parental preferences and cannot entirely be attributed to correlation between arranged marriages and unobserved characteristics. These results suggest that lowering the incentive for parental control in mate choice may improve investments in women's human capital in India.

That's from Divya Mathur; here is the paper, she is on the job market this year from Chicago.  I take the implicit model to be that parents want a wife who will obey her in-laws.  Sons want wives who will earn some money and be more interesting to talk to.  Put the son in charge and the supply of potential mates responds accordingly.

Is the American economy taking too much risk?

Tyler Cowen

As usual James Surowiecki has an excellent piece.  Excerpt:

Fund managers get bonuses at the end of each year, and they keep those performance fees even if the fund eventually goes south. So if a billion-dollar hedge fund rises twenty per cent in its first year and falls twenty per cent in its second, its investors will have lost money, while the fund’s manager might earn forty million dollars in performance fees. Hedge funds do have a rule that’s meant to deal with this problem: when a fund loses money, it yields no performance bonus until investors get back to even. The catch is that nothing prevents a hedge-fund manager from simply shutting down after a bad year and walking away with the fees he’s already accrued...Because fund managers reap large rewards on the upside without a correspondingly punitive downside, they have a much greater incentive to take big risks than ordinary investors do.

Managers, or for that matter ordinary investors, may not under normal conditions have enough incentives to take risk.  Remember the Kenneth Arrow argument that not all private financial risks amount to equivalent social risks?  Who cares if you lose money, provided that no real resources have been destroyed?  Yet a risk that pays off, say with a new product, does not in general return the entire social value of that product to the entrepreneur.

With hedge funds, are we now above or below the optimal amount of risk?  The answer of course is "we are taking the wrong kinds of risk."  We are finding more and more ways to (implicitly) write naked puts in highly leveraged forms.  Yes this has brought us new products but it all seems to be new mortgage products.  Could those products possibly justify the financial carnage we have seen?  That is the critical question but I suspect the answer is "no," that in this sphere we stepped beyond the bound of optimal risk-taking.

The junk bond revolution of the 1980s involved some "excess" risk-taking, but I believe those risks were more closely connected to the real economy, and more likely to bring real economy benefits, than the recent spate of mortgage-related risks. 

Markets in everything: self-constraint edition

Tyler Cowen

Greying Japan has a new weapon to scare people into saving for their retirement -- an exploding piggy bank.

The "Savings Bomb," which goes on sale in Japan next week, "explodes" and scatters coins if users fail to save for a long time, toy manufacturer TOMY Co Ltd said Thursday.

The battery-powered toy -- designed as a cartoon-style, ball-shaped black bomb with a skull and crossbones logo -- lights up, makes a noise, shakes violently and scatters coins if it is not topped up for a long time.

"Users must pick up and collect the scattered coins and reflect on their laziness," the Japanese company said.

Here is the full story, and thanks to William Griffiths for the pointer.  Of course if you think about the third derivative long enough, you will realize this might just cause people to spend their money, not save it.

China fact of the day

Tyler Cowen

Or is it Europe fact of the day?  Switzerland fact of the day?

Beijing is now Europe's largest source of manufactured imports, but the 27-nation bloc, with a population of about 470 million people, exports less to China than it does to Switzerland.

Here is the article. 

Markets in Everything: Cheat Offsetting

Alex Tabarrok

Building on the thriving carbon offset industry, an innovative British firm, Cheat Neutral, now offers cheat offsetting:

At Cheatneutral, we believe that we should all try to reduce the amount we cheat on our partners, but we also realise that fidelity isn't always possible.

That's why we help you neutralise your cheating. Your actions are offset by a global network of fidelity, developed by us. By paying Cheatneutral, you're funding monogamy-boosting offset projects - we simply invest the money you give us  in monogamous, faithful or just plain single people, to encourage them to stay that way.

Many people have already successfully used Cheat Neutral:

David cheated on his partner of ten years, Sebastian, with a younger man. He described for us what happened:

"Seb was so angry with me, I felt really bad about what I'd done. I came to Cheatneutral to offset the side effects of my cheating, and later on, Seb said the  only reason he could forgive me was because I'd offset my cheating with Cheatneutral. Thanks to Cheatneutral, we're still together, I can feel good about my cheating, and I've helped to reduce global cheating as well! If I do cheat on Seb again, I'll definitely be calling Cheatneutral."

Hat tip to David Zetland's new blog Sex, Drugs & Water Utilities.

Ricardo Haussman is bullish on biofuels

Tyler Cowen

He writes in the FT:

...technology is bound to deliver a biofuel that will be competitive with fossil energy at something like current prices. It probably already has. Brazil has been exporting ethanol to the US at an average delivery price of $1.45 for an amount with the energy equivalence of a gallon of petrol. It is doing so profitably and in increasing amounts, in spite of a 54 cents a gallon tariff to protect American maize-based ethanol producers. Many countries are following suit.

But ethanol is an inconvenient chemical compound that is corrosive and soluble in water, thus limiting its immediate market to that of a gasoline additive. However, this is just the Betamax phase of the industry. There is plenty of private venture capital money being poured into finding more efficient ways of extracting energy from biomass and delivering it to transport and power systems. Over time, the technology will also become more flexible, allowing more crops to be used as feedstock, not just the current choice of sugarcane, maize and palm oil...the world is full of under-utilised land that can grow the biomass that the new technology will require.

It shocked me to read this, though not for any good cognitive reason.  Perhaps I too quickly assume that the trendy will not pan out.  My not well informed mental model has been that our energy future lies with (relatively) clean coal, not so clean coal, nuclear, oil shale, and tar sands, all of which can in fact produce lots of power. 

Myth vs. reality

Tyler Cowen

If a mythical Tyler asked you that question "What have you been reading lately that you learned from?" what would be your answer?

Here is more, the distinction is between "reading edifying works, rather than works that challenged me and taught," the key is the latter, so answer the question!

The roots of independent media

Tyler Cowen

It seems to be advertising revenue, which gives media the incentive to appeal to a broad audience and the means to be independent of particular donors and interest groups:

The source of media revenues is an important determinant of media behavior. News coverage depends on the preferences of those who pay the costs. In a theoretical model, I argue that higher potential advertising revenues increase the value of news outlet's audience and thus decrease media dependence on subsidies of interest groups. The model shows that higher advertising profitability implies lower media bias and less distortion caused by the presence of special interest groups. I use data on 19th century American newspapers to test the model, showing that there were more independent newspapers in counties with higher profitability of advertising. The effect of advertising works through both the entry of new newspapers and changes of affiliation of old newspapers.

That's from a new paper by Maria Petrova, who is on the job market this year from Harvard.

How popular music reshaped high school status networks

Tyler Cowen

One side effect of the rise of popular musicians to media stars, and the displacement of couples dancing by musical performance-watching, was to make music concerts into an alternative gathering place to the arenas dominated by the traditional school elites, the jocks and popular party-goers and stars of the dating market.  As popular music consumption became the central identifying point of youth cultures, it also came to support greater pluralism in student status hierarchies, punk and other alternative culture groups acquired their own venues where they could generate their own collective effervescence, dominating in their own emotional attention spaces.  Moshers became the leading edge of punk culture, the attention-getters within their chief cultural rituals and gathering places.  Not surprisingly, there is strong antagonism between moshers and jocks, their chief counterparts in the use of controlled violence in the conventional youth culture.

That is from Randall Collins, Violence: A Micro-sociological Theory.  Here is my previous post on the book.  By the way, if you find questions like this interesting, it is yet another reason to watch the TV show Friday Night Lights.

Do monkeys self-deceive?

Tyler Cowen

In a fascinating column, John Tierney writes:

The Yale experiment was a variation of the classic one that first demonstrated cognitive dissonance, a term coined by the social psychologist Leon Festinger. In 1956 one of his students, Jack Brehm, carted some of his own wedding gifts into the lab (it was a low-budget experiment) and asked people to rate the desirability of things like an electric sandwich press, a desk lamp, a stopwatch and a transistor radio.

Then they were given a choice between two items they considered equally attractive, and told they could take one home. (At the end of the experiment Mr. Brehm had to confess he couldn’t really afford to give them anything, causing one woman to break down in tears.) After making a choice (but before having it snatched away), they were asked to rate all the items again.

Suddenly they had a new perspective. If they had chosen the electric sandwich press over the toaster, they raised its rating and downgraded the toaster. They convinced themselves they had made by far the right choice.

So, apparently, did the children and capuchin monkeys studied at Yale by Louisa C. Egan, Laurie R. Santos and Paul Bloom. The psychologists offered the children stickers and the monkeys M&M’s.

Once a monkey was observed to show an equal preference for three colors of M&M’s — say, red, blue and green — he was given a choice between two of them. If he chose red over blue, his preference changed and he downgraded blue. When he was subsequently given a choice between blue and green, it was no longer an even contest — he was now much more likely to reject the blue.

I would distinguish between self-deception and an endowment effect.  We value more what is ours, perhaps because of our biological programming -- to protect our children above those of others -- spills over into decisions more generally.  (Or perhaps because of a precommitment strategy to limit violent plunder of our resources.)  Self-deception is then layered on top, but in fact many mothers will argue that their kids are lazier or less obedient than the average.  The endowment effect holds nonetheless, as those mothers care more about their kids.  It is very hard to switch back babies once the hospital makes a mistake in allocation (how much time must elapse?), even if the parents know for sure they did not take home the genetically appropriate little bundle of joy.

I can see that the monkeys behave according to an endowment effect.  I am less sure that the monkeys self-deceive.  The key question, in my view, is whether the monkeys would throw out or downgrade information that some other bundle of food was in fact better than M&Ms.

Brad DeLong on popular economics

Tyler Cowen

From the Chronicle of Higher Education, including a discussion of Discover Your Inner Economist, Robert Frank, Freakonomics, and Steve Landsburg.

Speaking to the Swiss

Tyler Cowen

A group of Swiss businessmen will hear first Pascal Lamy on economic globalization and then me on cultural globalization.  I must keep in mind the fundamental principles of speaking to the Swiss.  Unlike virtually all American audiences, the listeners do not expect to be entertained.  Efforts to entertain will insult some of them.  I need not reach my main point until the end of the talk.  Taxonomy for its own sake is not detested, but PowerPoint is viewed with suspicion.

Ethnic food here is improving rapidly, but a simple daal with bread and rice can cost $20; the lovely scenery isn't the only reason immigrants wish to get in. 

Remember, remember the 5th of November

Alex Tabarrok

Ron Paul has now passed Fred Thompson in the probability of winning the Republican nomination.  According to Intrade, Paul has a probability of winning the nomination of 8.8%. (Guiliani (42.0%) and Romney (27.6%) are first and second.)

In closely related news, Paul raised $4.2 million yesterday.  V.

Thanks to Barry Klein and Tim Groseclose for the tips.

Worth wasting a minute with

Tyler Cowen

Visuwords, courtesy of Eduardo Pegurier.  I enjoyed entering "economics," it felt like someone or something was giving birth.

Or more, for some of you.

Is uncompensated care for the uninsured driving up medical costs?

Tyler Cowen

No, say Jonathan Gruber and David Rodriguez:

We measure uncompensated care as the net amount that physicians lose by lower payments from the uninsured than from the insured. Our best estimate is that physicians provide negative uncompensated care to the uninsured, earning more on uninsured patients than on insured patients with comparable treatments. Even our most conservative estimates suggest that uncompensated care amounts to only 0.8% of revenues, or at most $3.2 billion nationally.

Can any of you find an ungated copy of this paper?

Supercapitalism, by Robert Reich

Tyler Cowen

Finally, I will come to some conclusions you may find surprising -- among them, why the move toward improved corporate governance makes companies less likely to be socially responsible.  Why the promise of corporate democracy is illusory.  Why the corporate income tax should be abolished.  Why companies should not be held criminally liable.  And why shareholders should be protected from having their money used by corporations for political purposes without their consent.

That's from Robert Reich's Supercapitalism.  I'm coming late to this party, but mostly I liked the book.  It's full of fresh thinking and most of all it is excellent on just how much invisible hand mechanisms shape an economy.  It has the best explanation (and partial defense) of high CEO pay I've seen, namely supply and demand.  If you think it is exploitation of shareholders, take a look at how much private equity pays its CEOs.  And as the above quotation indicates, Reich is willing to rethink just about all the old left-wing shibboleths (what a biased word) about corporations.  He separates the analysis from the moral narrative, so when you disagree with him, that point is an isolated one and it does not infect everything he says.

Reich recommends that we strengthen atrophied democratic constraints on capitalist outcomes; in his view special interest politics are just another form of capitalism and special interests are crushing voter influence.  "Bryan Caplan, telephone!"

By the way, make sure you read this piece on the futility of campaign finance reform, which counts as one of the most overrated ideas.

Here is Greg Mankiw on the book.  Here is another take on the book. 

Assorted links

Tyler Cowen

1. James Flynn on IQ, at Cato Unbound.

2. My favorite things Swiss; several Swiss asked me to repost this, I can report the list hasn't changed much in the last year.  Zurich is wonderful on Mondays.

3. When asked, I will report.  My favorite blog post (of mine that is, and as distinct from the notion of best) is "Luring Alex to Lunch".

China fact of the day

Tyler Cowen

...there are 100 gigawatts of "illegal" electric power plants in China, meaning plants not approved by the central government. (The entire nation of France uses 80 gigawatts of power. China uses 650 gigawatts.)

China sentence of the day is also a citation from Arnold Kling:

China's central government has difficulty getting its constituencies to change, and it is "outsourcing" some forms of regulation and governance to the U.S. and international organizations.

China essay of the day is here.

Kottke interview of Cory Doctorow

Alex Tabarrok

Joel Turnipseed blogging at Kottke asks, why give away books for free?  Cory responds:

...we live in a century in which copying is only going to get easier. It's the 21st century, there's not going to be a year in which it's harder to copy than this year; there's not going to be a day in which it's harder to copy than this day....And so, if your business model and your aesthetic effect in your literature and your work is intended not to be copied, you're fundamentally not making art for the 21st century. It might be quaint, it might be interesting, but it's not particularly contemporary to produce art that demands these constraints from a bygone era....

So that's the artistic reason. Finally, there's the ethical reason. And the ethical reason is that the alternative is that we chide, criminalize, sue, damn our readers for doing what readers have always done, which is sharing books they love—only now they're doing it electronically. You know, there's no solution that arises from telling people to stop using computers in the way that computers were intended to be used. They're copying machines. So telling the audience for art, telling 70 million American file-sharers that they're all crooks, and none of them have the right to due process, none of them have the right to privacy, we need to wire-tap all of them, we need to shut down their network connections without notice in order to preserve the anti-copying business model: that's a deeply unethical position. It puts us in a world in which we are criminalizing average people for participating in their culture.

The economics have yet to be worked out but I think Cory has got the aesthetics and the ethics right.  Lots more of interest.

Violence: A Micro-sociological Theory

Tyler Cowen

That's the new book from Randall Collins. The main argument is that people are not as predisposed to violence as we might think.  Collins cites a wide array of evidence, from military behavior in the field to, most intriguingly, video studies of the micro-expressions of violent perpetrators.  People are more naturally tense and fearful, sometimes full of bluster but usually looking to avoid confrontation unless they have vastly superior numbers on their side.  The prospect of violence makes people feel weak and scared.  The greatest dangers of violence arises from atrocities against the weak under overwhelming conditions, ritualized violence enacted in front of supportive audiences, or clandestine terrorism or murder.

"Violence is not primordial, and civilization does not tame it; the opposite is much nearer the truth."  Similarly, most political violence does not follow from centuries-old grudge matches, but rather from recently fabricated, dynamically dangerous social ritual interactions.  Violence can appear on the scene rapidly but it can vanish as well, so there is hope for Iraq.

In reality most violent encounters end almost immediately, contrary to TV and the movies.  Someone runs away or a single punch ends the struggle.  The actual gunfight at O.K. Corral took less than thirty seconds, whereas the famous movie scene extends for ten minutes.

In combat it is just as dangerous to be a medic as a soldier, but medics experience far less combat fatigue.  Collins argues this is because killing is in so many ways contrary to human nature.

This book has soo many interesting parts, including the micro-dynamics of the Rape of Nanjing, how British soccer stadium designs were (but now less) conducive to violence, how demonstrations can turn into violent confrontations with the police (lines break down and micro-situations of overwhelming power arise), which children and schools are most conducive to bullying, why basketball has fewer fights than football or hockey (no padding), the dynamics of a mosh pit, and how hired assassins motivate themselves, among many other topics.

You economists all spend so much time studying voluntary interaction, surely you can devote one book's worth of effort to the study of violence, and yes I mean violence at the micro level.

I don't agree with everything in this book.  I think Collins too quickly downplays the importance of evolutionary biology (most fights are between young males), and it is not always clear if he has a systematic theory or instead a catalog of causes of violence.

Here is the book's home page, including chapter one.  Here is a page on Collins.  Here is an interview with Collins.  He is now working on a theory of sexual interactions.

Quite simply, Collins is one of the most important writers and thinkers today.

I know many of you have a bit of book fatigue from MR, but that is because it has been such a splendid year for the written word.  Violence: A Micro-sociological Theory is one of the most important social science books of the last few years. I'll go even further and say the same is true for any random one hundred pages you might select from the volume; it is also a wonderful for browsing.

It's due out January 10, you can pre-order at the links.

Shopping hour restrictions

Tyler Cowen

In Zurich almost everything is closed on Sundays, even my hotel restaurant.  There is one massive underground shopping mall clustered at the railway station, where for obvious reasons ("travelers") there is a Sunday shopping exemption.  I believe this is by far the largest mall in Zurich and of course it was open.  The ugliness of the mall, and the inconvenience of the low ceilings, illustrates just how much Sunday shopping is worth.  (That is why one of the world's wealthiest cities, and a pretty one at that, has such a monstrosity for shopping.)  Small entrepreneurs cannot compete with this (chain-laden) mall on Sundays, so I wonder if the hours restriction even favors small business on net.  The legal restrictions on outworking the competition also help explain why immigrants to Switzerland don't move up the economic ladder as well as many American immigrants do.

Free Swiss shopping, free it now.

George Bush knows how to keep a meeting short

Alex Tabarrok

I used to think that short meetings were best.  Clearly, I confused the private with the social optimum.

For bonus points compare the picture with Tyler's discussion of meetings.  How many items can you spot?

Meetings are not always about the efficient exchange of information, or discovering a new idea. Meetings can be about displays of power, signaling that a coalition is in place, wearing down an opponent, staging "theater" to make someone feel better, giving key players the feeling of being insiders, transmitting information about status, or simply marking time until something better happens. It's one thing to hate meetings. But before you can improve them, make sure you know what meetings are all about.

Hat tip to J-Walk Blog for the picture.

Why don't cell phone companies price per minute?

Tyler Cowen

David Pogue (via Kottke) asks:

Why doesn't someone start a cellphone company that bills you only for what you use? That model works O.K. for the electricity, gas and water companies -- and people would beat a path to its door.

Of course many companies will charge you by the minute.  Overseas, per minute plans are more common yet.  The puzzle I think is why the standard American plan is per month, with perhaps a non-convex minutes cap, rather than per minute.

The most likely answer combines price discrimination with consumer misjudgment.  If the company puts a very high marginal per minute price right at the cap, some consumers will, in self-deceiving fashion, think they are getting a good deal but then chat themselves into near-bankruptcy.  For the other consumers, you are forcing them to buy minutes as part of a bundle.  It is well know this can be an efficient means of price discrimination across high-value and low-value demanders; see my earlier post on cable bundling for a full explanation of the economics.

Why doesn't competition break down such schemes?  First, cell phone competition has become more intense only with number portability in the last few years; we can expect pricing schemes to continue to evolve.  Second, the cost structure of the company may have more to do with marketing than with the cost of supplying extra miniutes.  So "marginal cost pricing," or the nearest approximation thereof, may involve "per customer" charges (a fixed monthly fee) rather than "per minute" charges. 

Of course they'll let you opt out of all of this if you pay a high enough per minute charge, thereby reimbursing them for the fixed cost they paid upfront to recruit you.  That all said, if you go to Western Union and buy one of those cards with minutes to Sierra Leone, it seems that true marginal cost pricing reigns, subject of course to some probability of a fraudulent or difficult-to-use card.