September 14, 2016

Nice Guys Finish Last? You Can Bank on It

Remember when you were growing up in elementary school, and the teachers made pretty much everything a competition versus your peers in order to keep your attention and teach you valuable life skills? Perhaps it was determining who got to walk at the head of the line on the way to lunch by who did the best on a quiz, rather than deciding based on height (which I, at 6’3” would have preferred). These incentives were used to motivate us to work harder in order to have a chance to reap the rewards, as well as to convey a sense of “fairness” about the process which would otherwise be seen as a process involving either favoritism or randomness (or both) on the part of the teacher. As economists, we recognize how valuable such incentives can be as a motivational tool. The (unintended?) consequence of all of this competition among school children is that the common refrain, “he cheated!” rings out across the schoolyard on a frequent basis. And why shouldn’t some children test the boundaries, immediately discovering whether the costs of cheating outweigh the benefits, as they are caught and sent to the back? Thus, the incentive to cheat is greatly restrained by the swift doling out of a penalty moving you to the back of the line. The added benefit is that those students who don’t cheat aren’t relegated to the middle or even the back, due to the immediate punishments of the wrongdoers.

Things work out well in the school competition scenario described above, but with a slightly different set-up of incentives things can quickly go awry. This appears to have been the case for Wells Fargo, as the bank was recently fined $185 million due to the discovery that many of its employees had “cheated” by opening fake accounts in order to receive bonuses associated with meeting sales goals. It has been widely acknowledged that there have been winners and losers as a result of this practice. There are the account holders who never consented to having new accounts opened in their names, but were still charged fees associated with those accounts. Wells Fargo has agreed as part of the settlement to refund those approximately $2.6 million. There is the Wells Fargo Unit Leader who oversaw the “cheaters,” who left with $125 million just after news of the scandal broke. This is akin to a teacher getting credit for her students’ impressive test scores, only to find out later that the students had cheated. And of course, there are the 5300 employees who were eventually fired for “cheating” by opening the fraudulent accounts.

But there is one affected group which has largely been ignored in this situation; the Wells Fargo employees that simply chose not to cheat. Unlike the schoolchildren in the example above, the offending employees who cheated were not caught and reprimanded immediately, but rather over a five-year period that culminated in the recent ruling. Throughout those five years, there were thousands of Wells Fargo employees who played by the rules, and didn’t open fraudulent accounts. Because the penalties weren’t immediate, these honest employees were relegated to the middle/end of the metaphorical line. Where are the articles calling for these “nice guys” to be compensated for lost bonuses that they may have rightly earned had everyone played by the rules?

To be fair, even the honest employees would have benefited some from Wells Fargo’s success before the cards came tumbling down. If they owned stock in the company, they would have seen the rising value as the company appeared to be performing better than it actually was. If they are still holding that stock, however, those gains would have quickly dissipated this week. It could also be argued that some honest employees were only able to be retained by Wells Fargo over this period due to the company’s relative success. However, the flip-side of that coin is that some honest employees may have been fired for not meeting elevated sales goals that would have been lower had the cheating not occurred.

The problem here is that the lag in punishment for cheaters leads to what amounts to an immediate punishment for non-cheaters, which is never fully rectified. Wells Fargo has even announced that they are removing the sales goals in an effort to restructure incentives, but they aren’t going as far as to retroactively compensate the “honest” employees according to the new pay structure. They are now “Taking appropriate actions—including disciplinary‚ to address those who have served our customers in ways that were counter to our ‘Vision & Values,’” but make no mention of addressing those who served customers honestly and by the rules.

From an economic perspective, it is important to consider that people are rationally motivated by incentives, but that they may not realize or consider the negative impact that their actions have on others. However, this does not mean that the negatively impacted group should be ignored or forgotten. It’s important not only to punish those who cheat, but also to be sure that those who play by the rules get their turn at the front of the line.

August 21, 2016

Should a Gold Medal be Awarded in Ticket Scalping?

It’s pretty exciting to watch Michael Phelps, Katie Ledecky, or Usain Bolt race their way to victory on TV each night during the Olympic Games. Think of how much more exciting it would be to witness the experience live in Rio, with the crowd surrounding you jumping and chanting and cheering with every kick, stroke, or step! As with pretty much everything in life, there are some people who would find this experience to be much more valuable than others… and they would be willing to pay for it!

The problem is, there is a very limited number of seats in each venue, so not everyone can get a ticket that wants one. The question then becomes, how should the tickets be distributed in order to maximize total welfare? If we take the Coase Theorem at face value, then it really shouldn’t matter who gets the tickets initially, as they will always end up with those who value them most. The process of reselling tickets in a secondary market is called "scalping." In fact, when people engage in this trade, surplus is created and society overall is better off. The conclusion that these trades will take place, however, relies on one particular assumption which is not always valid in this circumstance: the assumption that transactions costs are low.

Let’s assume, for example, that the Olympic Committee is in charge of the initial distribution of all 100 tickets to the Men’s 100m final race that Usain Bolt is sure to dominate. They don’t want the world to tune in and see empty seats in the stadium, so they are sure to set the price for tickets low enough to ensure a sold-out stadium. We can assume that the charge the minimum price that they need to receive in order to not lose money on the event. Thus, no producer surplus is collected in this scenario. The problem is that at this price, 150 people want to buy the 100 tickets that are available. So by what mechanism does the Olympic committee allocate these tickets? It seems that, as may be expected, some are allocated to those who have some special involvement with the event (athletes’ families, event organizers like the man discussed in the article mentioned above, etc…), and then the vast majority of tickets are made available online. Is this an optimal way to distribute tickets? Let’s take a look at some graphs to see.

First, let’s look at how much surplus would be generated if the 100 people who valued these tickets most highly just happened to be the ones who received them in the online distribution. The surplus generated under this scenario is shown in the purple area in the first graph below.

 What if, instead, it was the 100 people who valued these tickets the least, but were still willing to purchase them at the price set by the organizing committee (persons 50 - 150)?
As can be seen in the example above, the area of Consumer Surplus is much larger if the tickets are allocated to the 100 people who value them the most. But there’s no guarantee they will be the ones to get through the online ticketing system first.

This is where the Coase Theorem kicks in. The 50 people who value the tickets the least would be willing to sell their tickets to the 50 who value them the most, and at a price that those high-valuers are willing to pay! In fact, they may even be willing to pay a small fee to help match those with tickets with those who to purchase them. Sites like Stubhub, BANDWAGON, and the NFL’s Ticket Exchange have been created to provide this information and, in exchange, try to capture some of this surplus.

The problem is, not only can it be costly to try to find and buy tickets to the event you want to attend, sometimes it is illegal to resale tickets to these sorts of events. For instance, check out this article on an Irish International Olympic Committee executive who recently was “accused of plotting with at least nine others to sell tickets above face value.” Laws like this prevent welfare enhancing trade from taking place, so why would they even exist in the first place?

It is true that there is a fair amount of risk involved in purchasing a ticket in a secondary market. The ticket could turn out to be counterfeit. Many sites offer a money-back guarantee if a counterfeit ticket is purchased, which helps users develop enough trust to use the site (and pay a small fee) rather than purchasing a ticket in person or not buying a ticket at all. Knowing you’ll get your money back is great, but there is an additional cost incurred by those who travel to the sporting event and have been waiting for weeks or months to see their favorite athletes compete, only to be turned away at the date on the day of the race. Penalties for selling counterfeit tickets attempt to address this, but enforcement of those penalties has a cost as well.

Are there any better ways to allocate these tickets, which may avoid some of these costs? One option may be to offer the tickets via an online auction! An auction could sell each seat (or each section of seats) at a different price. If run properly, this method could approximate perfect price discrimination. The result would be a graph that looks very similar to the first graph above, but with the surplus accruing to the producers rather than the consumers. The question is, would the cost of setting up and running this auction reduce surplus by less than all of the costs of the secondary market discussed above. Also, we can’t forget that people may well change their preferences in the time between when the tickets are first allocated and when the event takes place. The change in preferences will cause some people to enter the market, and some to want to sell their tickets after all, so a secondary market may still be beneficial.

August 14, 2016

Dynamic Pricing and Menu Costs - Taking a Shot

When you’re planning a trip to McDonalds for dinner, you have a pretty good idea of how much any item you’re planning on purchasing is going to cost. In fact, you would be pretty surprised if you arrived at McDonalds and an item on the “Dollar Menu” suddenly cost $1.37, or even $0.74. McDonalds keeps its prices fairly stable, and in doing so, two things happen. First, you’re able to decide whether driving your family to McDonalds for dinner today is preferred to going to Applebee’s, or Five Guys, or preparing your own burgers on your backyard grill. The second thing that happens is McDonalds is able to print up signs and advertisements that list the items (usually with a picture that looks much more delicious than what you’ll eventually receive through a drive-through window) along with the prices and how great of a deal you’re getting! These signs and advertisements act to increase demand for McDonalds’ products by informing more people of their availability and luring them into the market.

Wouldn’t it be crazy if the price for a hamburger and fries changed before you got to the restaurant; or if the price changed while you were standing in line? That’s exactly what’s going on at a bar in San Diego, as described in this article. The Blind Burro has adopted a system that allows for the price of the tequila it sells to change at any moment, based on how many people are ordering the brand and, presumably, how much is in stock. Known as dynamic pricing, this method allows the bar to raise the price of tequila brands that are selling well that night, sensing the higher than expected demand for the beverage.

“This is an outrage! They’re taking advantage of their customers!” you may protest. “They lure you into the bar and then jack up the prices, forcing you to pay way more than expected!”

However, don’t forget the flip side to this arrangement. If you’re willing to drink a brand that’s not selling well that night, you’ll be enticed by falling prices and a great deal! Plus, it’s always important to remember that no one is forcing you to exchange your hard earned dollars for tequila or any other drink. In fact, it’s not just “trade” that makes everyone better off (or technically at least no worse off), but rather voluntary trade. This idea hinges on the idea that if you aren’t gaining from the trade, you won’t rationally take part in it. You can always walk away without purchasing the drink.

“If this dynamic pricing idea is so great and economical, why isn’t it more prevalent?” Actually, in a lot of ways it has been around for a while. For example, you don’t always pay one constant price for the goods you buy at the grocery store. The price is adjusted through things like sales and coupons. A more appropriate example in this context may be the infamous Happy Hour (unless you’re in Boston or a handful of other areas where they are outlawed). Even restaurants engage in a similar practice for some items, listing “market price” on a menu for the seafood “catch of the day.”

All of these tactics are a form of what economists call “price discrimination,” which sounds terrible but can actually be quite beneficial in increasing overall surplus. The surplus is increased because people who value the good most highly are able to purchase it, while those who place a low value on the good don’t buy it if the price is too high. Because the amount of each brand of tequila in a bar each night is relatively fixed, the preferences of who buys the tequila matters a lot.

Imagine one shot of José Cuervo Gold tequila were listed on a traditional menu at a price of $3, which is the lowest price that the bar is willing to sell the beverage in order to not entirely give up their profit. The bar has stocked 10 shots worth of this particular brand for the night. Also, imagine that the first guy who walks in wants to buy at least ten shots for him and his friends, and they’re all willing to pay no more than $3.25 for those shots. Luckily, the bar has them in stock, and happily sells him the 10 shots. The consumer gets surplus of $0.25x10 shots = $2.50 and the bar gets no surplus.

Then, 20 minutes later another person walks up to the bar who is willing to pay up to $5.00 for each of those 10 shots, but is turned away because the bar is now out of stock. If the bar had been able to adjust prices, they could have set the price higher (at say $4.50) to start the night. The first person would have been deterred, but the second would have been able to buy the shots! In this scenario, surplus to the consumer would be $0.50/shot x 10 shots = $5, and the bar also gets $1.50/shot x 10 shots = $15 above the minimum price they were willing to sell the drinks for. Of course, without dynamic pricing the bar could still set the price at $4.50, but the bar would then worry that if the second person never walked in that night, it wouldn’t sell any at all. So dynamic pricing allows for the flexibility that increases surplus in this scenario from $2.50 to $20.00!

The question now is whether dynamic pricing will become much more prevalent, infiltrating all sorts of bars, shopping centers, movie theaters, and fast-food restaurants all across the country. I would argue that, even with technological advancements, it would take a lot of time for individuals and businesses to get used to prices changing so frequently. While making some tasks easier, others like planning a vacation would be much harder to budget for. There are some gaps that could be filled by writing contracts and purchasing insurance ahead of time, but these options come at a cost as well. However, I’d still argue that implementing this pricing system in some areas is worth a shot!

August 2, 2016

No 'Free Parking' in Real-Life Monopoly?

It’s a tradition as old as consumerism itself. You’ve mastered the art of procrastination, and it’s now Christmas Eve and you have yet to finish buying presents for your loved ones. Unless you’re lucky enough to live in a city where Amazon offers same day shipping, you’re going to have to venture out into the cold to shop at an actual store. But everyone knows you don’t venture out to just any store for Christmas presents, you head to your local shopping mall! The problem is, everyone else has the same plan, and you find yourself circling the parking lot for hours, looking for a place to leave your car before the stores close or sell out of Tickle-Me-Elmos.

Wouldn’t it be great if there were a way to deter others from using up all of these parking spots that you find so valuable? Well one mall in Colorado is attempting to do just that. According to this article from an NBC News affiliate in Colorado, the Cherry Creek Mall in Denver has decided to begin charging for parking in its surrounding lots and garages. In terms of economics, we can speculate on why this change was made (and whether it’s a good or bad idea) from a couple of different perspectives.

It’s possible that the mall is charging for parking spots specifically to improve the use experience on days like the one described above, where the fixed quantity of parking spots available is exceeded by the number of shoppers looking for them. The mall may consider that happier shoppers who are willing to pay a bit to park may also be the types of shoppers who will spend more in the stores inside.

The mall is more likely to be making its decision using a profit-maximization framework. Clearly, assuming some people continue to choose to park at the mall for more than an hour (the first 60 minutes will be free), the mall will be bringing in more revenue from parking than when parking was free. The first question, however, is how many customers will be turned away by the new up-front fixed cost of shopping at the mall, and how this will impact the sales of the mall’s tenants? The mall is hoping to gain more from charging people to park than it will lose through a decrease in the prices it is able to obtain from charging stores to lease spots within the mall. These factors are influenced both by the elasticity of demand for parking, as well as the elasticity of demand for tenant space in the mall itself.

The elasticity of demand for parking is a measure of how many fewer people will park at the mall, if the price of parking increases. It is largely dependent on how many substitutes people can find for parking at the mall. These could take a variety of forms. If people are mainly parking at the mall now to shop at the mall’s stores, then substitutes could include parking elsewhere and walking or riding over to the mall to shop, parking and shopping at other malls or shopping centers, or even staying home and shopping online. There may also be people, however, who use the mall’s parking facilities as a free way to store their car close to downtown Denver, and then travel into town via public transportation or carpooling. These people may choose to instead park closer to downtown, or to find a lot farther out which is less expensive. It will depend on the cost of other parking and transportation options available to them.

It is clear from the mall’s ability to increase prices that it is not in a perfectly competitive market for parking in the area. This is because, while the potential substitutes above exist, many consumers will find spots close to mall (especially garage spots) to be more valuable/higher quality than spots in nearby areas. With this limited monopoly power, standard analysis will show that raising prices and restricting quantity can maximize profits for the monopoly, although it would likely decrease overall welfare, as those previously parking at the mall for free who now don’t park there at all lose Consumer Surplus in the amount of what they would have been willing to pay to park in the mall lot (more than $0 but less than the new price).

So did the mall make the best choice for how to handle its parking situation? This largely depends on what its other options were. Another solution that may have been considered, and may limit the backlash from the public to some extent, would be to have stores validate parking if a purchase is made. This would allow the mall to more directly target the two different groups of people who are looking for parking spots; shoppers and commuters. If the mall is able to raise the price of parking for commuters, but keep the parking free (through reimbursement) to shoppers, it can improve upon any issues with congestion and a shortage or spots without giving up too much revenue from its store tenants. So if you live in the Denver area, keep in mind that while the new parking fees may be irritating now, they could save you a huge headache when you’re already back at home with family and friends on Christmas Eve, instead of sitting in a snowy parking lot for looking for a spot.

July 18, 2016

Are ‘Sin Taxes’ All Smoke and No Fire?

In teaching basic economic concepts, I always enjoy when we arrive at the lesson combining elasticity with taxes. It is an interesting topic, because it allows students to think about the true motivation for different laws, and excise taxes provide a rather simplified example to tie the two concepts together. As an example, I recently came across an article in the Denver Post which details a proposed constitutional amendment in Colorado to implement a pretty drastic increase in the per-pack cigarette tax in the state.

Before I address the article directly, I’ll provide a quick overview of the terms used above. Consider an excise tax to be a tax on a specific item, such as cigarettes, as opposed to a sales tax which would apply to most or all items you purchase. When thinking about elasticity of demand, think of it as measuring the percent increase or decrease in quantity demanded, when the price of that good changes by some percent. Basically, if a good that you want to buy gets more expensive, how much less of that good are you now willing to buy? This elasticity ranges from Perfectly Elastic (you won’t buy any quantity of the good anymore if the price goes up even a penny), to Perfectly Inelastic (you’ll keep buying the exact same amount of the good, no matter how much the price increases).
As you can see in the graphs above, if the price of cigarettes were to increase due to a tax, the quantity demanded would drop off precipitously if demand for cigarettes were very elastic, but would hardly change at all if the demand for cigarettes were very inelastic.

Thus, it is important for us to consider the ultimate goal of those proposing the increased tax. In the article, the proposed initiative is said to include an increase in the per-pack tax on cigarettes in Colorado from $0.84 to a whopping $2.59. It is argued that this would be done “in the hopes of persuading more people never to start smoking.” However, how easy is it really to get people to stop smoking, or never to start, by raising the price of a pack of smokes? This is where elasticity should examined. The article cites “research on consumer behavior” which “suggests as many as 35,000 kids could be kept from starting as smokers by the proposed tax increase.” However, a quick google search finds that estimates of the price elasticity of demand for cigarettes are consistently in the “inelastic” range, with absolute value between 0 and 1.  What this means is that, if the elasticity were -0.50, a 10% increase in the price of cigarettes would only result in a 5% reduction in the quantity of cigarettes demanded. Thus, an increase in the amount of the excise tax on cigarettes wouldn’t get many people to quit smoking, but it would increase tax revenues.  The article notes that the proposed tax is expected “to bring in $315 million in its first year.” If this is the true goal of the tax, the supporters should be clear about it.

The proponents of the amendment seem to be relying on two things in this scenario. The first is that they are focused on preventing children from beginning to smoke, rather than stopping current smokers. Perhaps children’s demand for cigarettes when they do not yet smoke is much more elastic than the other groups cited in the estimates above. Secondly, the money raised through the tax is, for the most part, going to be funneled in to programs aimed at helping people stop or never start smoking. Through these programs, the elasticity of demand for cigarettes could be changed over time. If people did stop smoking, less tax money would be collected, but less money would also be needed to fund programs to help people stop smoking.

A final point of consideration is to keep in mind that elasticities are really just estimating the slope of the Demand curve at one given point. They are great for obtaining an estimate of how steep the Demand curve is in close proximity to this point, and thus for estimating the elasticity of demand for small changes in prices. However, they are much less accurate for estimating how much quantity demanded will change due to extremely large changes in prices. As such, any estimates of a fairly large increase in prices (such as the 159% increase in the proposed amendment) must be taken with a grain of salt.

The point of this post is to keep in mind that when an excise tax increase is proposed, the desired result may be to substantially decrease consumption or to increase tax revenues, but it is difficult to accomplish both.

Home Prices in San Francisco… Decreasing???

In April, 2016, Business Insider published this article which had a headline that was sure to garner some attention from anyone who knows anything about the high cost of living in San Francisco. The article itself is a fairly incomprehensible amalgamation of quotes and data points, so I wanted to take some time to try to unravel its economic points here.

The main thrust of the article seizes on the observation that “house prices fell 1.8% year-on-year in March, the first such drop in four years.” The first takeaway from this is that it may be an indicator that the extremely hot San Francisco housing market is cooling down. To investigate whether this is the case, you should probably be asking yourself, what economic reasoning would produce this result. A decrease in prices could be the result of a decrease in Demand, an increase in Supply, or some combination of the two. I’ll examine the likelihood of either of these scenarios based on the information provided in the article, and then entertain a few other possibilities which should be explored.

A decrease in demand (whether due to people exiting the San Francisco housing market, a change in taste for San Francisco housing, or some other undisclosed reason) would, ceteris paribus, result in a lower quantity of housing demanded as well as a lower equilibrium price for the average unit.

This is a possible cause, and receives support from the quote in the article where the Chief Economist for Redfin talks about the reduction in listings which were subject to a bidding war. However, the article then immediately switches gears by implying that San Francisco has an “undersupply of housing coupled with a healthy demand.” If this is truly the case, then that “healthy demand” would be maintaining or even increasing the level of demand, leading to the opposite result in terms of price and quantity changes.

If Demand isn’t the main cause of lower prices, then surely it must be due to a change in Supply. More specifically, lower prices would be caused by an increase in Supply, which would also lead to an increase in quantity supplied.
Whether we consider this increase in supply to be newly built homes, or simply an increase in the number of homeowners who are considered in the market to potentially sell their homes, an increase in Supply would contribute to lower home prices. However, the article once again contradicts itself, noting that “there simply aren’t enough homes for sale…” and “many sellers are sitting this year out.” The quotes would suggest, if anything, a decrease in Supply, which would actually result in higher equilibrium prices.

So if we can’t be sure whether year-over-year decrease in housing prices is attributable to a change in Demand or Supply, how should we proceed? One option is to consider whether the market is truly in a long-run equilibrium state. It may be that the market is still adjusting to find the correct price for these homes, and therefore does not meet the assumptions used above. Another thing to note is that the data-point used to generate the article in question is simply that -- one data-point. In order to determine whether market forces are contributing to a true and sustained decline in home prices in this area one would want to examine many more data points and possibilities. Long-run trends in home prices and other contributory factors should be examined, to determine whether a slight decreases in one month compared to that same month one year before are truly indicative of a changing market. For instance, it could be that the homes that happened to be sold the previous year were larger and/or higher quality than those sold this year, which would lead to a lower average sales price, even if overall prices were still increasing. All in all, I’m not as confident as the author of the article is to conclude that “[h]omebuyers are so fed up with San Francisco’s crazy housing market that prices are now falling.”

June 24, 2016

Rent Hike in Wyoming – A Study in Market Forces

I came across an article recently about a large forthcoming increase in the cost of rent in Jackson Hole, Wyoming. The article, “Rent hike has tenants reeling,” was published in the Jackson Hole News & Guide. It details a clear and devastating plan by the landlords of the 294-unit apartment complex to raise rents by more than 40% in the coming months, and is accompanied by worried quotes from current residents who feel they cannot afford such steep increases when their leases are set to renew. The article’s main focus revolves around two issues which local residents are having a hard time stomaching. The first is the rise in rents. The second is that “the drastic rent increase at Blair Place comes in the midst of an exceptionally tight housing market. Available rentals have all but dried up, while costs for construction have skyrocketed.” Surely, the article suggests, the landlords must realize that the lack of available housing is enough for local residents to handle, without piling on higher rents. This main premise, however, fails to consider some simple economic principles at work.

To understand why higher rents may be exactly what are needed in the Jackson Hole area, let’s imagine some Supply and Demand Curves:
 We can see that the graph includes a standard downward-sloping Demand curve, indicating that more rental units are demanded the lower the price per rental unit gets. However, with the Supply curve, we have a typical upward slope until 183 units (the number of 2-bedroom units available in the apartment complex in question), but then at 183 the Supply curve becomes vertical. This is because, at least in the short-run (and with the prohibitively high construction costs mentioned in the article), the available stock of 2-bedroom apartments in this area is fixed. (For simplicity, we are looking only at this particular apartment complex, but a similar graph could be drawn for the entire Jackson Hole area).

The article goes on to describe how an influx of tourists has driven up demand for these available housing units (either from more workers wanting to live in the area, or from the tourists themselves wanting to rent the units). We can use the following graph to get a good idea of what this increase in Demand may look like:

We see that the increase in Demand creates a new equilibrium price at $1800. If the Supply curve remained upward sloping (perhaps if more 2BR housing units could be built quickly and cost effectively), the price would not increase as much. However, in the short-run, if we were to limit the price of housing so that it wasn't increasing by almost 50%, notice that the quantity demanded would exceed  housing units available to be rented, this high level of demand drives up the price substantially.

The article in question, however, also specifically points out that there is not an overabundance of apartment rental units to be found in Jackson Hole. Complaints describe how this limited availability is an extra and potentially undue burden on local residents. The problem is that the increased prices are a result of high demand and short supply. Imagine, for instance, if a price ceiling were enacted to maintain a maximum price of $1,250 per 2BR apartment. As can be seen in the following graph, the quantity demanded at this artificially low price would be enormous, and there would be many individuals who simply could not find an apartment to rent in the area at this price.

Some may worry that the market is not in a competitive equilibrium, but rather that the apartment complex has some monopoly power over the market. If this were the case, standard economic analysis would indicate that the monopoly would restrict the number of housing units they are renting out and raise the price, in order to increase profits. Under such a scenario, residents would have reason to complain of limited availability of housing and high prices. 

However, the info-graphic provided along with the article shows that this apartment complex is unlikely to have much monopoly power. It notes that only 6.2% of the units in Jackson are at the Blair Place apartment complex. If the market is competitive, then Blair Place would not be able to continue to find renters to voluntarily sign a lease at their property.

Ruling out monopolistic restrictions on quantity supplied (which would also assume there is not a large amount of collusion between apartment providers in the area), there is simply not much room to complain of higher prices. What better way to allocate the limited quantity of rooms than through a revealed willingness to pay?