Since I alluded to Larry Summers’ paper on “ketchup economics” from the mid-eighties earlier today, I may as well quote the funny part:
Ketchup economists reject out of hand much of this research on the ketchup market. They believe that the data used is based on almost meaningless accounting information and are quick to point out that concepts such as costs of production vary across firms and are not accurately measurable in any event. they believe that ketchup transactions prices are the only hard data worth studying. Nonetheless ketchup economists have an impressive research program, focusing on the scope for excess opportunities in the ketchup market. They have shown that two quart bottles of ketchup invariably sell for twice as much as one quart bottles of ketchup except for deviations traceable to transaction costs, and that one cannot get a bargain on ketchup by buying and combining ingredients once one takes account of transaction costs. Nor are there gains to be had from storing ketchup, or mixing together different quality ketchups and selling the resulting product. Indeed, most ketchup economists regard the efficiency of the ketchup market as the best established fact in empirical economics.
I was actually inspired to do some research into the ketchup market and discovered that at my local Safeway, a 20 ounce bottle of Heinz sells for $0.13 an ounce. If you go up to a 32 ounce bottle, the price falls to $0.11 an ounce; meaning in effect your extra 12 ounces cost only $0.77 cents per ounce. Thus, we can use the Efficient Ketchup Markets Hypothesis to back-calculated the exact nature of the transaction costs and so forth that justify these prices volume discounts.