Wednesday, August 10, 2011

Supply Pricing

While I really enjoyed the general feel and content of “No, I will not read your f**king script,” it brought up a recurring story that I thought needed a response from theory. The story goes that a man asked Picasso to draw him something on a napkin. After finishing, he asked the man for a million dollars in exchange. There is a similar story about when Whistler was asked to justify the incredibly high price of his paintings.

The explanation that the article gives is that you are not paying for the artist’s time right then, that you are instead paying for the years of experience and study that this artist has accrued. This idea, if artists generally knew anything about economics, would probably be considered a labor cost argument for pricing. Economics has long since abandoned this argument for pricing in most cases. Thebetter reason that the Picasso drawing was worth so much was that Picasso could have walked into a gallery, pinned the napkin to wall, and sold it for 1 million dollars, which we often think of as opportunity cost. Don’t believe me? Think about the case of the toddler modern artist http://tinyurl.com/6qsk7y. What training did he have? Leonardo DiCaprio made $25 Million dollars for playing the lead in Gangs of New York, which was about four times the wage earned by the much more experienced Martin Scorsese.

Reading a script or doing a sketch also has interesting issues with marginal cost. There is very little marginal production cost to someone reading a screenplay or doing a little sketch. It is simply a matter of how much people like this value their leisure time in comparison to how much they gain from working. I would bet a lot of money that they value their time more than the marginal benefit of reading another screenplay, or doing another sketch. How do I know? Because, if they didn’t like their leisure time more than the benefit they get from working, they’d be working instead. And If you’re wondering about whether they could be working, most people have stacks of screenplays waiting at home, and Picasso had no shortage of paint.