Wednesday, March 18, 2015

Korea's inverted economics

I got paid! By both Dongguk and the Golden Goose! So for a few glorious hours, I get to marvel at having $5,000 in the bank, which is the most I've had in the bank in a long while. It's all going to disappear more or less instantly, I'm sad to say: W1.5 million will be going to my coworker to repay his generous loan. Another W1.5 million will be heading home to my US account. Another half-million won will go to studio rent early next month, and a goodly chunk of what's left will be stuck back in my secondary account for safe keeping. Whatever's left will be for shopping and other instances of random awesomeness.

But despite this straitlaced financial picture (oh, yeah: KMA texted to officially cancel this weekend's gig), I'm normally in the habit of celebrating payday in a modest manner—generally by ordering a larger-than-usual meal. I got home from the Golden Goose a little after 9PM, and I dithered until after 10PM before deciding I wanted a Saint Paddy's Day pizza from a local pizza joint. I knew there was a chance that I wouldn't be able to order anything after 9PM, so my Plan B was to hit the local galmaegi-sal place, which had caught my eye back when I had just moved into this neighborhood.

As I had feared, the pizza joints weren't picking up calls at 10:15PM, so I lumbered out in search of galmaegi. The local restaurant is called Mapo Galmaegi; I had already swung by a couple weeks earlier to stare at its menu and check prices. I could see right away that everything was more expensive than Seorae, the galmaegi-sal place in Jongno, downtown Seoul; and tonight, when I entered the restaurant, sat down, and grabbed the menu, my initial impressions were confirmed: Mapo was way the hell more expensive than Seorae.

At Seorae, you can get 500 grams of solid pork (the galmaegi-sal in question) for W17,000. Add the dwaenjang soup, the bottles of soda, and the bowls of rice (gonggi-bap), and the tab for two people is a little over $40. Not terrible, but not McDonald's, either. At Mapo, galmaegi is sold in ridiculously teensy portions of 150 grams; each portion is a whopping W8,000. So do the math: at Seorae, it's W17,000 for 500 grams of meat; at Mapo, it's W16,000 for 300 grams—a ripoff. But I was feeling spendy, so I sat down to a Mapo-style meal consisting of 300 grams of galmaegi-sal. The meal wasn't bad, but I couldn't help comparing what I was eating to what I'd gotten used to having at Seorae. I think of Seorae as "Tom's restaurant," since my buddy Tom is the one who introduced the place to me. Tom has a knack for finding good deals and good value; I don't have anything like his acumen. My finding Mapo merely reinforced that point: the place has inferior meat, skimpy portions, and exorbitant prices.

Which brings me to the subject of Korean economics. I now live in Goyang City, which is tiny compared to Seoul. As an American, I'm used to the notion that small towns and cities are generally cheaper, overall, than big cities. Having lived in Korea for a decade, however, I know this doesn't hold true here on the peninsula: in Korea, small-town food, transportation, and other conveniences tend to be more expensive. I'm no longer surprised by this fact, but I still have trouble wrapping my head around why this is so. Why, for example, were taxis more expensive in Hayang, back when I lived there? Why did Hayang restaurants generally serve stingier portions at elevated prices compared to what one can find in Seoul?

If there's a possible free-market reason for Seoul's cheaper prices, it may be this: competition naturally drives prices down, and Seoul's fractal layout—in which restaurants sit next to restaurants, and cafes sit next to cafes—ensures that there will always be heavy competition. Seorae wasn't the only galmaegi place in that part of Jongno; there were other grill-'em restaurants only a few yards away. You can't attract customers unless you lower your prices, so the presence of all those competitors much have some sort of depressing effect on prices. In Goyang City, by contrast, restaurants sit farther apart; there's less competition because there's less of a restaurant density, so to speak. As a result, prices are higher, and townies are a sort of captive audience who get screwed thanks to the lack of competition.

If that's the rationale behind higher prices in Korean small towns, then I have to wonder why I take it as a given that, in America, small towns tend to be cheaper. Why are small-town prices cheaper in the States? It's at times like these that I truly regret never having taken any economics classes.


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3 comments:

Charles said...

Got me on the economics, but what I want to know is this: Do you think that Seorae portions are really 500 grams? I ask because the wife and I used to hit Seorae every now and then when I was at HUFS, and we always ended up eating significantly more meat there than we did at home. This means one of two things: 1) For some reason, we habitually ate more at Seorae than we would normally eat at home, or 2) Seorae portions are not as large as they advertise.

I'm not discounting the first possibility, but I've always wondered about the second possibility. This sort of thing is not unheard here, after all. But I can't very well walk into Seorae with a scale to weigh the portion (well, I guess I could).

You're more of a connoisseur of meat places than I am--what do you think? Did the portions ever strike you as a little smaller than advertised, or am I just imagining things?

(For the record, our suspicions never stopped us from going--even if the portions aren't exactly 500 grams, it's still cheap.)

John Lee said...

There are many, many factors at play when it comes to prices.

1) Location, location, location. Due to proximity and competition (or the lack thereof), prices can certainly differ.

2) Transportation costs. Naturally, it costs more to take something farther.

3) Economies of Scale. Bigger businesses are able to exploit cost advantages more than their smaller competitors. Due to their size, output, or scale of operation, cost per unit of output generally decreases. That is because whereas fixed costs are, well, variable costs are more spread out over more units of output. Now both restaurants might be similar in size. However, we also have to consider the size of their various suppliers.

For example, gas prices can be higher in small towns than in larger cities because outlets that sell a lower volume of product often don’t forward contract for the fuel they buy. If a gas outlet owner doesn't buy his stock in a large volume, which is difficult to do in small towns, the business tends to buy it at whatever price it is on that particular day. So, prices can be higher. The same can be true of food.

If we are going to compare between the US and Korea, we have to look at the business sizes in both countries, specifically in rural areas. I do not have enough data to give more than anecdotal evidence, which probably does not help.

4) Quality: In the case of galmaegi-sal, the meat is widely considered to be better tasting than other parts. Whether it is true or not is secondary. The perception is enough for an increase in prices. So, there might be a difference in perceptions that people have. Are Americans as susceptible to popular tastes as Koreans are? Maybe, maybe not. It is possible that this might be a contributing factor or perhaps not.

5) Alternative competition: This is not so much competition between similar businesses but rather competition between dissimilar businesses. For example, when I seek entertainment, I might have the option to choose between movie theaters, shopping malls, libraries, museums, night clubs, etc. However, people tend to forget that restaurants are more than just places where we pay for food. It is also a type of entertainment venue where we can eat AND socialize. If there is a dearth of other alternative places where people can socialize, then that will be reflected in prices.

7) Politics. Though it is certainly not true at all times, smaller American towns tend to be run by Republicans are larger cities tend to be run by Democrats. The smaller towns, therefore, levy lower tax rates than their larger competitors. Again, this is not a rule.

8) Are prices in American small towns cheaper than in larger American cities? That, too, might not be true at all times.

Kevin Kim said...

Charles,

I'm honestly not sure. It wouldn't surprise me to discover that Seorae was shortchanging its customers by several grams.

John,

Thanks for stopping by and explaining many of the factors that aren't evident to econ-ignorant folks like myself. Regarding this:

"For example, gas prices can be higher in small towns than in larger cities because outlets that sell a lower volume of product often don’t forward contract for the fuel they buy."

Are you talking more about the US, about Korea, or about the world in general? My own experience, living in the tiny town of Front Royal, Virginia, was that Front Royal's gas prices were significantly lower than gas prices closer to or inside Washington, DC. Centreville, Virginia, which is about halfway between DC and Front Royal, had more expensive gas, and DC was most expensive of all.

According to GasBuddy.com, gas prices in my hometown region are like this:

Front Royal: $2.22-$2.25/gal (median approx. $2.25)
Centreville: $2.34-$2.59/gal (median approx. $2.43)
Washington: $2.29-$3.89/gal (median approx. $2.49)

Another interesting wrinkle, which goes along with what you said in your comment re: big companies & the cost of supplying them, is that small towns like Front Royal are now magnets for huge chains like Walmart, which does indeed offer cheaper prices than your typical mom-and-pop store.

All that said, I suspect you're right that small towns aren't always cheaper than big cities, even in America. But the impression I've had in America is, all the same, completely the opposite of the impression I've had in Korea. A lot happens in Korea that strikes me as non-intuitive. For example, the price of seafood: seafood is damn expensive in Korea, this despite the fact that Korea is a freakin' peninsula. How does that make any sense?