L’histoire de sa vie

I've written a lot about this topic in various other locations, but I figured it's time to talk about it here: much of craft beer is absurdly underpriced. I've touched on supply/demand before in this blog, but a quick refresher can't hurt. Basically, to the left is a supply and demand curve. It's basic. Where that dot labeled "equilibrium" is is the magical world where supply matches demand. In that world there's an equilibrium price and an equilibrium quantity. It's magical, of course, because it rarely exists with specific goods.

Craft beer is one of those goods where the equilibrium seems to be a fantasy, impossible to reach. Instead, we're at a point on the supply curve down and to the left of the equilibrium: quantity is low, price is low.

The symptoms of this are obvious in many craft beer scenes around the country: super quick sellouts, the recent Hunahpu's Day disaster, beer scalpers, etc. When demand outpaces supply, these types of things happen. These are simple market inefficiencies. And there's only two ways to fix these inefficiencies: increase supply or decrease demand.

Increasing supply is a somewhat nice idea, and in the market overall, this is already underway. More and more craft breweries are opening, expanding, increasing production. However, because beers are not perfect substitute goods, an increase in supply in the overall market does not translate to an increase in supply for particular beers. As a result, rare or limited releases continue to see the problems described above. In fact, this is precisely where the problem is most evident and these beers are the exact ones I would argue are underpriced.

Thus, demand must be decreased. And as the supply/demand curve image shows, if the quantity can't increase, the price must. And as it does, the consumer appetite will decrease, demand will drop as prices approach equilibrium. Note that there's nothing "fair" about this – it's a purely capitalist system, but it's also a system that, with the scarcity that exists, works.

Jester King's Aurelian Lure and Nocturn Chrysalis were priced at sixteen dollars per 500ml bottle. There were about 500 bottles of each. Every bottle sold out within three minutes. That's absurd. Jester King could have easily charged twice that and the sellout would still have occurred, albeit at a slightly slower rate. In fact, I would argue that Jester King could have charged ten times as much – an unheard of (some might say obscene) $160 per bottle, and still sold out in a reasonable amount of time. (Of course, they would have had to remove the "limit one per person" stipulation. And I wouldn't have gotten any.)

A six-pack of Saint Arnold Divine Reserve may run you as much as twenty dollars. Look on Craigslist a day or two after it's been sold out in Houston, and you'll see postings asking for fifty or one hundred dollars. No matter how often people flag the posts (myself included) as prohibited, those sellers will sell the beer they bought. If they wouldn't, then we wouldn't see the same thing after every somewhat limited release. The prices they request are closer to the market equilibrium, and the gray market rewards them for taking advantage of a massive market inefficiency.

Part of the problem, I believe, is that there seems to be some kind of "noble pricing" that breweries implement. Reputational risk is probably a concern, but honestly, a lot of breweries are owned by or started by people who find it abhorrent to charge more than what they think is fair. Freetail is a great example of this, and they have stated before that they purposely keep prices low, intentionally do not capitalize on the extreme demand for Ananke and other special releases, and do not plan to change this in the future. Honestly, I think that's noble, wonderful for my wallet and those wallets of my friends, and unsustainable.

The prices probably won't rise in the near future, unfortunately, because of this reason and other reasons. But I repeat that I believe this is unsustainable. The growth in craft beer demand looks to continue at ridiculous rates, while supply simply cannot keep up. The result will be increased gray market activity, more catastrophes at beer releases, more rapid sellouts and angry consumers, and ultimately chaos. It's not impossible to envision a future in which a brewer throws his hands up and sells out or quits, in retaliation to this chaos. And that benefits nobody.

The responsible but unpopular thing to do is to raise prices. Craft beer is massively underpriced and unless this changes, there may be a crisis ahead.

A continuation from yesterday’s post about crazy baseball ideas the Astros should try because they have nothing to lose.

Starting Relief – I got this idea while watching Brett Myers pitch. Myers has a lot of trouble with the first inning. He usually gives up a couple runs then settles down until around the fifth or sixth, when he again gets shaky. Check out his six starts for the month of June:

Remarkable. In June, Myers began each of his starts by giving up runs, yet had a clean second inning every time. In those starts that the Astros lost (Jun 7, 12, 29), they never had the lead after his two first-inning runs. So why let Myers pitch the first inning?

And that’s where my crazy idea comes in. The first inning sets the tone for the whole game. In many ways it’s as important as the ninth. So my proposal is to have a “starting reliever” who comes in for the purpose of handling only the first inning. Think of this “opener” as a reverse closer. Rather than hold the lead, he is simply holding the first inning. When the second frame opens, the starter will come in, pitching his customary outing.

In Myers case, that means a pitcher in the first, one in the second through seventh, a setup man, and a closer.

The best part of this is that if the starting reliever does a good job, the starting pitcher starts his game in the middle of the opposing lineup, avoiding the dangerous one-two-three hitters until later in the game.

This is also great for starting pitcher stats: the starting pitcher is as likely to earn a W, but slightly less likely to take the L – if the starting reliever screws up big, the starting pitcher is insulated from this tarnish to his record.

Again, this is a crazy idea, but it’s worth a try, and Brett Myers for one could really benefit from it. What do we have to lose?

It’s no secret that the Astros are in terrible shape. They’re in dead last, with little hope of not earning 100 losses for the first time in franchise history, and they can afford to make drastic changes.

Some might suggest that these drastic changes would come in the form of trades, or giving the “youth movement” a serious chance and benching fatty Carlos Lee. However, I have a few other (somewhat crazy) ideas that I think should be given a fair chance, especially because Brad Mills would never let those more-rational ideas fly. This is basically the optimal time to try ridiculous ideas because there’s nothing to lose. Part one is my first crazy idea:

Five-Man Rotation – Every team now has a five-man rotation, it’s been standard for quite some time. Each day, the next pitcher in the rotation starts the game, lasts five to seven innings on average, and then the bullpen takes over. But what if this rotation pitched every day, for one inning? Consider the Astros starting pitching:

The obvious immediate con is that pitchers might tire from pitching every day, but the average innings pitched over five games would actually lessen per starting pitcher. The other major con would be that this forces four innings of bullpen work, something not really realistic for teams like the Astros. To fix this, one pitcher should pitch a second consecutive inning. If a great outing has not occurred before the fifth inning, the fifth inning pitcher will pitch in the sixth.

The pros are manifold: pitch counts won’t skyrocket (who cares if a pitcher pitches thirty plus pitches in an inning if that’s their only inning?), pitcher stats (W/L) will still be affected, on average, in the same manner: whoever gives up the Loss gets the L, and if they can hold a W, whoever pitches in the 5th is likely to earn it.

Basically you no longer have to worry about the times when you get less than five innings (or less than six in the case of my first fix proposal) from your starting pitcher. You’re guaranteed six solid outings of starting pitching every game. When a starter falters a bit, no worries: they’ll be out at the end of the inning. Opposing teams won’t get into a rhythm with the pitchers because they’ll face so many different pitchers.

It might be crazy, but it’s worth a try. Tomorrow I’ll detail my next crazy idea. Stay tuned.