In a typically thoughtful post, Ed Felten challenges the gloomy conclusions some people have drawn from the Radiohead ‘choose your own price’ strategy for their latest album.

Comscore released data claiming that 62% of customers set their price at zero, with the remaining 38% setting an average price of $6, which comes to an average price of $2.28 per customer.

Ed points to a basic economic point missing in this debate: Lower average price does not imply lower profit. Radiohead may well be making more money because the price is lower.

To see why this might be true, imagine that there are 10 customers willing to pay $10 for your album, 100 customers willing to pay only $2, and 1000 customers who will only listen if the price is zero. (For simplicity assume the cost of producing an extra copy is zero.) If you price the album at $10, you get ten buyers and make $100. If you price it at $2, you get 110 buyers and make $220. Lowering the price makes you more money.

Or you can ask each customer to name their own price, with a minimum of $2. If all customers pay their own valuation, then you get $10 from 10 customers and $2 from 100 customers, for a total of $300. You get perfect price discrimination — each customer pays his own valuation — which extracts the maximum possible revenue from these 110 customers.

Of course, in real life some customers who value the album at $10 will name a price of $2, so your revenue won’t reach the full $300. But if even one customer pays more than $2, you’re still better off than you’d be with any fixed price. Your price discrimination is imperfect, but it’s still better than not discriminating at all.

Now imagine that you can extract some nonzero amount of revenue from the customers who aren’t willing to pay at all, perhaps because because listening will make them more likely to buy your next album or recommend it to their friends. If you keep the name-your-own-price deal, and remove the $2 minimum, then you’ll capture this value because customers can name a price of zero. Some of the $10-value or $2-value people might also name a price of zero, but if not too many do so you might be better off removing the minimum and capturing some value from every customer….

What the discussion about this misses is the change in the cost-structure of music. Some time ago, William Fisher published an analysis of the cost structure of a CD. It turns out that distribution and retailing accounts for nearly half the cost, with artists getting only 12 per cent. Take out the costs of physical distribution and you have a very different picture.

… there’s an interesting report in the Telegraph:

The Bank of England Governor has issued an extremely unusual warning on world stock markets, indicating that shares may be heading for a major fall.

Mervyn King said the full impact of the credit crunch had not yet been felt on equity markets in the West and in developing countries, saying that the possibility of share price falls were one of the biggest risks facing the world economy.

His warning came as the Bank gave a firm indication that it plans to cut interest rates as many as three times over the next two years to protect Britain’s economy in the wake of the credit crunch. The signal caused the pound to drop to a four-year low against the euro, with the single currency now worth 71.13p.

Here’s a neat idea — a filter for detecting stupidity in online communications and filtering it out.

StupidFilter was conceived out of necessity. Too long have we suffered in silence under the tyranny of idiocy. In the beginning, the internet was a place where one could communicate intelligently with similarly erudite people. Then, Eternal September hit and we were lost in the noise. The advent of user-driven web content has compounded the matter yet further, straining our tolerance to the breaking point.

It’s time to fight back.

The solution we’re creating is simple: an open-source filter software that can detect rampant stupidity in written English. This will be accomplished with weighted Bayesian analysis and some rules-based processing, similar to spam detection engines. The primary challenge inherent in our task is that stupidity is not a binary distinction, but rather a matter of degree. To this end, we’re collecting a ranked corpus of stupid text, gleaned from user comments on public websites and ranked on a five-point scale.

Eventually, once the research is completed, we plan to release core engine source code for incorporation into content management systems, blogs, wikis and the like. Additionally, we plan to develop a fully implemented Firefox plugin and a WordPress plugin.

More power to their elbows, as we say in Ireland. And if you’re puzzled by the reference to ‘eternal September’, see the helpful Wipipedia entry. Basically, it’s shorthand for what AOL did to online discourse.

Hmmm… Stryker McGuire writes:

It’s one of the best-trailed conversions in the history of the Roman Catholic Church. Former British prime minister Tony Blair, an Anglican, is to be formally received into the Church in the next few weeks, according to The Tablet, a London-based Catholic newspaper. Blair has regularly, though quietly, attended Catholic services over the years with his wife and four children, all of whom are Catholics, and his conversion was rumored for the 10 years he was in office…

Someone once observed that Blair and Margaret Thatcher had a lot in common in that both Prime Ministers always believed they were right about everything. The difference between the two, however, was that Blair also believed that he was ‘good’.

Ah, white-wall tyres. They were all the rage in 1940s America. They don’t make ’em like this any more. Sigh.

Observed in a gastro-pub’s car park.