♪♫My little pony. My little pony. Ahhhhhh! ♪♫
When my daughter told me I had to watch an episode of My Little Pony: Friendship is Magic because it would teach me something about economics, I couldn’t resist the challenge.
By the end of the episode, I had to agree: there was a lesson there. The episode illustrated the dangers of complacent monopolies, the importance of market competition and the power of exit.
These weren’t the lessons my daughter, or the writers, thought were there. But they were there none the less.
A visit to Ponyville
The episode begins on the first day of Cider Season, the annual festival when the Apple family makes and sells their famous cider. One of the ponies tries to get to the festival extra early because every year the Apple family runs out of cider before she gets a cup.
Alas, when she gets to the festival there is already a long line. Predictably, the Apples serve their last cup of cider just as she gets to the front of the line.
At that point, two magic unicorns arrive in what can only be called a “contraption”. They claim their machine can make enough cider for all of Ponyville. Granny Smith, the matriarch of the Apple family, retorts that the Apples limit their production in order to ensure that every cup meets their exacting standards. The two unicorns then challenge the Apples to a contest. Whoever can make the most cider in one hour becomes the exclusive Cider Provider for Ponyville.
This sets up a classic John Henry contest of pony vs. machine. The Apples quickly fall behind as the unicorns’ machine out-produces them by three to one. But when the Apples recruit their friends to help, they quintuple their output and pull neck-in-neck with the unicorns.
That’s when the unicorns make a terrible mistake. Desperate to regain the lead, they turn off the machine’s quality control unit and more than double their production. But there’s a cost! The new cider is thin and watery and full of twigs and leaves.
At the end of the hour, the unicorns have produced twice the cider the Apples and their friends did. The mayor of Ponyville pronounces the unicorns the winners and names them Cider Providers for the whole town.
The dejected Apples begin to pack up their things to leave town while the unicorns start serving their new customers. But as soon as the first ponies taste the twiggy cider, they declare they’ll never drink this and leave.
Without customers, the unicorns are forced to pack their bags and the Apples are saved.
A truly great lesson in economics. (Seriously, I loved the lesson of this show.)
It obvious what lesson the writers wanted kids to take from this show; that cheating unicorns, who only wanted to make a profit and didn’t care about the quality of their product, took advantage of the Apples’ commitment to their cider. But the unicorns were undone by their own greed.
The anti-profit bias couldn’t have been more blatant if they’d named the unicorns Flim and Flam. Oh wait, they did name the unicorns Flim and Flam.
That’s the lesson my daughter thought I would learn, but I looked just under the surface and found several very different lessons.
Why did the Apples run out of cider every year? Year after year after year, the poor pony at the beginning of the episode always went home thirsty because the Apples never made enough cider. Even though the Apples claimed that the money they made during the Cider Festival was what kept the farm running for the rest of the year, they never made enough cider to meet demand.
To me, this sounds like a complacent monopoly keeping production low in order to gain from an artificial shortage. The ponies were paying two gold coins for every cup of that cider. They never explained where the ponies got the gold (or for that matter, how something with hooves holds a cup of cider), but that seems to be a lot of coin for cider.
I bet the Apples knew exactly how much cider they had to sell at that rate to be in the black for the year and they worked just hard enough to make that much. That whole commitment to hoof crafted quality thing was just an excuse to keep production low and profits high.
The Importance of Competition
If that sounds too cynical for a children’s cartoon, consider this. At the first hint of competition, the Apples increased their cider production by a factor of five. They doubled their staff, by recruiting their friends, and they all worked a little harder. That’s all it took to make five times as much cider.
Doubling their costs for a five times increase in production seems like a really good deal to me. Yet when the Apples had a monopoly they never bothered to take advantage of this potential. Instead, they just let Ponyville go thirsty.
Flim and Flam did Ponyville a favor by forcing the Apples into a competitive market. Even with their inferior cider, Flim and Flam forced the Apples to up their game and produce more cider at a lower cost per serving. Thanks to them there is finally enough cider in Ponyville to go around.
Power of Exit
When the mayor of Ponyville declared Flim and Flam the exclusive Cider Providers, she missed one important limit to her office. She could prevent anyone else from selling cider in Ponyville, but she couldn’t force the ponies to buy Flim and Flam’s bad cider. The ponies voted with their hooves and took their money elsewhere.
If Ponyville had been a medieval village, the mayor could have levied a tax on the ponies and forced them to support Flim and Flam. Or, if Ponyville was communist, the economy might have been so devastated the ponies would have no choice but to queue up hoping to buy anything.
Ponyville obviously has a problem with excessive government licensing, but at least it has enough of a free market left to allow the ponies the power of exit.
My Daughter Gets It
When I explained this to my daughter, she actually got it. I think it was the monopoly that really opened her eyes. If it was so easy for the Apples to make enough cider to satisfy everyone, why didn’t they? Why did they wait till Flim and Flam threatened their business to do what was right for their business and for their customers?
Once she understood that, the rest made sense.