Professor Mark J. Perry's Blog for Economics and Finance
Dr. Mark J. Perry is a professor of economics and finance in the School of Management at the Flint campus of the University of Michigan. Perry holds two graduate degrees in economics (M.A. and Ph.D.) from George Mason University near Washington, D.C. In addition, he holds an MBA degree in finance from the Curtis L. Carlson School of Management at the University of Minnesota. In addition to a faculty appointment at the University of Michigan-Flint, Perry is also a visiting scholar at The American Enterprise Institute in Washington, D.C.
4 Comments:
I am sure everything they send must cost on the average below $10 to handle and ship unless it is an operation that is willing to lose money.
So they play with the law of large numbers. Although cost of items is normally distributed if they have a large number of them, they should make sure the conjuction of cost distribution and s&h cost districution has a mean less than $10.
So a customer can surely get an expensive item out in 3 sigmal, like a flat screen TV but many others will get a cheap gismo that fits in a letter envelop to make that up and turn a profit.
It's a business equivalent to lottery. I think it will do great because it is a brilliant idea and a great mathematical problem.
Now that I think about it, this type of business must comply with lottery laws and disclose the odds of winning something as a function of value.
If the odds of getting something that is valued $(X+10) are less than the odds of winning the same amount in a lottery with a $10 ticket, then you are better of playing the lottery.
Send me 10 bucks and I will send you a nickle. Or maybe a pickle. And I will even pay for postage!
These people are paying for the fun of it, and it is worth it (it must be or they wouldn't pay).
I bet they get something better than I did when I went to watch Indiana Jones, the Stupid Episode.
I got my something today... check it out at...
http://pakletadventures.blogspot.com/
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