22 March 2015

Harry Potter and the Magic of Markets

By

It was the summer of 2005, and I was fourteen years old. The sixth Harry Potter book, Harry Potter and the Half-Blood Prince, was due to come out in just two days’ time, and my sister and I had not stopped arguing for a week.

The problem was simple. My mother, who was adamantly against all waste, refused to buy more than one copy for our household. Given that it would only take a maximum two weeks for my sister or me to read it, she was not going to waste money buying us a copy each. Which meant one of us was going to have to wait for the other one to finish it.

My sister and I had both made passionate speeches arguing as to why we should have first-reading rights. As the older sibling, I felt as though I was entitled to it. I was, after all, the first person in my family to discover Harry Potter at the age of eight, three years before my sister showed any interest at all. I was more of a die-hard fan than she was, and had queued at midnight for the fifth book two years earlier, while she hadn’t bothered getting out of bed. I also had a reading speed at least double that of hers – I could finish the new book in two days, whereas she could be reading it for weeks.

Of course, my sister didn’t see it like that. From her perspective, she had always had to get everything second-hand. I had been the first person to read the initial five books, and now it was her turn. She also made some half-hearted claims about how she would enjoy it more from reading it slowly, which made no sense to me.

My mother had almost given in and was on the verge of agreeing to buy us both copies after all, when my father stepped in with a solution: we were going to auction the book.

The rules were simple. He was going to start at £20, and count backwards pound by pound, in what I later learnt was a Dutch Auction style. At any point, my sister and I could shout ‘done!’, at which point we would have to pay the other one the sum for the reading rights. After that, no more arguments.

(Looking back, another solution would have been for us both to buy our individual copies. Strangely, that did not occur to either of us. I think we considered books to be something our parents bought for us, or maybe we just didn’t like the thought of one of us getting it for free while the other paid. I don’t know, kids are weird.)

He began, and we stared at each other across the table, trying to pre-empt when the other one would move. £20 was a month’s allowance, and no small amount. 15, 14, 13… the prices were getting more manageable now. 9, 8, 7… getting closer.

I buzzed in at £4, and relief flooded me. My sister looked confused, and for a moment I wondered whether she was going to argue. But no, she just couldn’t understand why I’d pay almost a week’s allowance just for a few days’ head-start. I, on the other hand, was surprised she didn’t realise what she’d given away.

The upshot was that my parents suddenly had two very happy daughters – one with £4 extra in her pocket, the other knowing she’d be able to find out what happened next to Harry as soon as possible. The price was perfect, because it was the price we’d simultaneously agreed on, even without realising it.

It was another five years before I learnt anything about markets or had even heard of supply and demand. I just thought of it as the perfect solution to a seemingly unsolvable problem. And even today, I’d find it difficult to come up with better way of teaching a child the most important tenet of economics: a thing is worth what someone is willing to pay for it.

Rachel Cunliffe is Deputy Editor of CapX.