This morning's mail brings the following query from reader Robert Lester Porter:
There is a phenomenon in the Chicago area that perplexes me and before I go to an early grave I would like to hear an economist discourse on it. It seems that the yuppies are willing to pay exactly three times the basic market price for both regular and cherry tomatoes if those vegetables come with their stems attached. They are thus marketed as "tomatoes on the vine."
Now since one can't grow tomatoes without a vine attached; since one can't and doesn't eat the stem, it is the appearance of the tomatoes that compels the yuppies to pay more. From a botanical standpoint, the stem is the umbilicus; from the psychological, it is obviously a phallus—isn't almost everything? But it is the economics that fascinates me.
Let me know your analysis at your leisure and pleasure.
By way of full disclosure, I am uniquely unqualified to address this question, having never (to my knowledge) tasted a tomato. No, it's not that I'm allergic (how would I know?); I just don't like them. I happen to have been born with this knowledge, so there's never been any need to put it to the test. The same goes for beer, which I've also never tasted. You know that game where you get points for never having done things that everyone else in the room has done? I'm really really good at that game.
But experience is not always a prerequisite for insight. Indeed, despite my lack of tomato experience, I seem to have a key advantage over my correspondent Mr. Porter, whose query arrived via the quaint medium of ink on paper, folded into an envelope and delivered by the United States Postal Service. Namely, I have easy access to Google, which Mr. Porter apparently does not. When I search for "tomatoes on the vine," the second hit tells me that "the vine keeps them fresh … when the vine is still attached … nutrition from the plant is still being pumped into the tomato, keeping it firm, bright, crisp and yummy—and more nutritious."
Simple truth or calculated hype? I can't say, though I am sure hundreds of readers stand poised to educate me. But it doesn't really matter anyway, because Mr. Porter asked the wrong question in the first place. Instead of wondering why consumers will pay a higher price for tomatoes on the vine, he should have asked why producers will accept a lower price for tomatoes off the vine. More explicitly: If tomatoes on the vine command a higher price, what seller in his right mind would remove the vines?
Answer: A monopoly seller might do exactly that, if he were trying to boost the price of on-the-vine tomatoes by restricting their supply. But if ever there was a good that's supplied competitively, it's tomatoes. Thus no tomato seller has any interest in restricting supply, because no competitive seller has any appreciable impact on market prices.
So, the real riddle here is about the producers' behavior, not the consumers'. Consumers are notoriously idiosyncratic. Some snack on carrots; others snack on Hostess Ho-Hos. Some like their tomatoes on the vine; some like them off. That's a fact, not a puzzle. Tastes differ. Explanation complete.
Well, not always. The economic provocateur Deirdre McCloskey observes that when the question is "Why did the man drink the motor oil?" it simply will not do to close the question by declaring triumphantly that he had a taste for drinking motor oil. Still, there's a wide range of behavior that economists are generally comfortable attributing to nothing more mysterious than a diversity of tastes.
At least that's true on the demand side. The supply side is a tougher nut to crack, because sellers are presumably driven not by tastes but by profit, and profit, unlike the taste of a tomato, is the same no matter who measures it. If sellers appear to be discarding profits, then there's a puzzle to solve.
In the case of tomatoes, there's only one possible solution to that puzzle: It must be cheaper to provide tomatoes off the vine than on. Maybe that's got something to do with shipping costs; tomatoes look like they'd be a lot harder to pack when they're strung out in a row. Also, I'm guessing that the tomatoes most suitable for on-the-vine display have to be grown differently in the first place.
All of which is pure speculation, and pure speculation can lead one badly astray. My colleagues and I have a little game we sometimes play at lunch. We pick a local business and estimate its profit. (How many customers do we see going in per hour? How much does the average customer spend? How many employees are there, and how much do they probably earn? And so forth.) Our conclusion has invariably been that the business in question is losing money fast enough to bankrupt anyone this side of Bill Gates. Yet after 20 years, most of those businesses are still there. The conclusion is that either most retail establishments are owned by eccentric billionaires, or there's something about retailing we haven't figured out.
You might expect, then, that I'd be chastened enough to test my tomato speculations against reality, say by phoning a tomato grower or spending a little more time on Google. But if I did that, I'd at best learn something specific about tomatoes, whereas there really is a deeper and more general point here. Namely: There are only two ways a single good can sell for two different prices. Either a monopolist is manipulating the market (unlikely in the case of tomatoes), or the price difference reflects a real difference in costs. That's why economists and noneconomists respond so differently to the observation that women pay more for dry cleaning than men do. To the noneconomist, the question might be: Why are women willing to pay more? To the economist, the natural question is: Why does it cost more to clean women's clothes? The answer to that question is interesting (I wrote about it in Slate once) but not as interesting as the observation that there must be a cost difference.
While we're on the subject, my Dominican student David Hernandez informs me that plantains cost three times as much in the Dominican Republic, where they're grown, as in the United States, to which they have to be shipped. He has no idea why and neither do I. But David has taken enough economics to know that the answer has to be based on costs. How can it possibly be more expensive to sell plantains where they're grown than to ship them abroad? All I can think of is that it must have something to do with taxes or subsidies. Can any reader help?