Economics in Curb Your Enthusiasm: Coffee Shop Competition
Latte Larry vs. Mocha Joe Provides Economic Lessons
Curb Your Enthusiasm is in its 12th and final season this year. The series is funny, entertaining, and shows situations from real life. Many of these situations provide economic lessons and during Curb Your Enthusiasm’s final season, I will be discussing economic lessons from the series.
In the 10th Season of Curb Your Enthusiasm, we see two stores competing against each other, Mocha Joe’s and Latte Larry’s. Mocha Joe’s is a coffee shop in a strip mall. When Larry David went there, he thought Mocha Joe’s coffee was too cold, the scones were not well prepared, and the tables were wobbly. Mocha Joe was also rude to Larry and kicked him out, so he decided to start Latte Larry’s, a competing coffee shop, right next door.
The competition between these two allows us to discuss a few economic lessons.
Learning about the benefits of competition
First, the market for a hot cup of coffee is a good example of a monopolistically competitive industry. In this type of market, there are some aspects of competition. Specifically, there are many small firms (at least small at the store level), and there aren’t many barriers to entering the market. We say “monopolistically” competitive instead of perfectly competitive because the products are slightly different. In the real world, a cup of coffee from Starbucks differs from Dunkin, McDonalds, the local coffee shop, or the local gas station coffee.
Monopolistically competitive markets are good for society for a few reasons. First, the competition between firms generally keeps prices reasonably low. For example, consider another monopolistically competitive industry, fast food restaurants. While a Big Mac is quite different from a Whopper, a Wendy’s burger, a Taco Bell taco, etc., if the price becomes too high, people who would otherwise love Big Macs will buy something else. That is good for consumers.
Second, and more importantly, competition fosters innovation from entrepreneurs. Free markets – and free market innovation – are the most powerful source of increased well-being in this world. In this episode, we see that Latte Larry’s attempts to innovate in several ways. Of course, as is customary in this show, some seem ridiculous, but the non-wobbly tables and coffee that stays hot certainly are significant improvements over Mocha Joe’s offerings.
Looking at the broader picture, worldwide, most of the benefits from entrepreneurs go to the public at large, and studies have shown that only 5% of the benefits from new products, services, and inventions go to the business owners – the rest of the gains benefiting consumers and society.
Spite changes payoffs
Larry David decides to open Latte Larry’s, not because he needs the money. He’s independently wealthy because he co-created Seinfeld. He opens his store to spite Mocha Joe. While this is an obvious example of spite – they even use the phrase “spite store” in the show – spite exists in the public as well.
For example, recently, a web business publication, which clearly didn’t like that Harvard’s president was ousted and the actions of billionaire Bill Ackman in advocating for her removal, decided to run a story alleging plagiarism against his wife (who was not involved at all in the story otherwise). There were probably some clicks and economic benefits initially from this story, but going after someone’s spouse here seems to violate normal journalistic ethics. However, things change when you look at the value of spite – then you can see why the action is rational. In response, Bill Ackman has decided to spend significant amounts of money going after those who ran the story and those who seemed to support it.
In economics and game theory, we examine how people make decisions based on potential payoffs. However, in most examples, it might be simple monetary payoffs, and spite isn’t considered. However, spite is a factor in the real world, and in Curb Your Enthusiasm. Latte Larry’s started because he got mistreated in Mocha Joe’s and wanted revenge, but in the real world sometimes people would make a seemingly irrational decision until you consider that spite has value.