Monday, October 24, 2005

The Case for MLB Opening the Roof

On the eve of the first World Series game ever to be played in Texas, there is much consternation at the House That Special Purpose Entities Built. Major League Baseball has announced that if the weather is nice, it will intervene and order the roof open for game 3. While I have major problems with a sports league making such a mandate, there is a case to be made for it. Essentially, we're caught in a prisoner's dilemma.

Let's assume, for the sake of argument, that every team in Major League Baseball has a retractable roof. If you accept the premise, which is tough to refute, that baseball played outdoors is better than baseball played indoors, then the best situation for everyone is for all roofs to be open all the time. In any given city, however, the best situation is to keep your own stadium's roof shut for home games because it will allow your team's fans to have a greater effect on the game. So while optimizing overall utility, or happiness, or whatever, for all baseball fans requires roofs to be open, teams acting in their own interests will always act unilaterally to maximize individual payoffs, leading to a suboptimal outcome.

If its participants maximize their own utility, the prisoner's dilemma must end in a suboptimal outcome, unless there is an outside authority to enforce cooperation. Enter Bud Selig. John Nash would be proud.

Saturday, October 22, 2005

Plato vs. Aristotle in the World Series

More than ever before, this year's World Series is not just a clash of two teams but a clash of opposing philosophies on the playoffs. You could say that this debate goes all the way back to the original Tony Kornheiser and Michael Wilbon, Plato and Aristotle.

I've always enjoyed the fact that we have many different ways of crowning a champion. College basketball gives 64 teams a shot at the title, while college football pits the top two teams against each other (and was entirely determined by a vote until a few years ago). What I think is regrettable is that since more playoffs bring more money, there is a seemingly irreversible trend toward having more teams participate in the postseason. Some people enjoy the excitement of expanded playoffs, while others think that it's a poor way of choosing a champion. Which begs the question: just what is a champion?

One of Plato's most important ideas was the theory of forms. He believed that there existed a world outside of space and time that held universals, or archetypes, and that what we experience in our own existence is just an approximation of what exists in the world of forms. The most common example used is that of a chair. Plato said that when we call something a chair, we do so because it has "chairness"; that is, it calls to mind the ideal form of a chair. We will never experience a true chair, only our own earthly approximations of a chair.

Aristotle thought differently. He said that if something is made of wood (or something else suitable for making a chair) and is in a shape such that it can be sat on, then it's a chair. There are no forms; the particular is the thing.

So to Aristotle, the champion of a sports league is probably the team that walks away with the trophy. But to Plato, the true champion exists in the world of forms, and playoffs should tell us which team best exemplifies this ideal.

Once upon a time, the best team in each league won a trip to the World Series. Starting in 1969, each league was split up into an east and west division, whose champions would play in a league championship series. In 1995 the number of playoff teams was doubled once again, as a central division was added and a wild card slot was awarded to the team with the best record that did not win its division.

Those who take a Platonic view believe that the team that wins the most games is most likely to be the "true" champion, just as a larger sample size yields a greater chance that an observed result is the "true" result.

The wild card has greatly increased the chances that a team that has demonstrated itself to be not as good as a division rival can still have a shot at the title. Luck, and other factors, can account for 2 or three game differences between a division winner and its nearest rival, but the 22-game deficit with which the 1998 Red Sox won the wild card is pretty clear cut. Ditto the 2001 Athletics, who finished 14 games behind the Mariners. Of course, neither of these teams had much success in the postseason, but what are we to say about the 1997 and 2003 Marlins, who won the World Series despite finishing behind the Braves by 9 and 10 games, respectively?

Well, that depends on where you're coming from. Someone sharing Plato's views would probably argue that a long season is a better determination of the champion than a short playoff, but an Aristotelian would argue that a champion is whatever Major League Baseball says it is.

Which brings us to this year's World Series. Throughout the year, the Chicago White Sox have displayed quite a bit of what Plato might call "championhood." All year they have had one of the two best records in the league, and they have been solid in every aspect of play (hitting for average, hitting for power, baserunning, pitching, and defense). Plato would be proud.

The Houston Astros, as has been pointed out, have been built for the postseason. They have three dominating pitchers, a solid bullpen, and an almost unhittable closer carrying a team that is proficient but not dangerous with the bat. Actually, even proficiency took a while to develop. When the Astros started 15-30, and during some offensive droughts that were spread through the season, they routinely wasted great pitching performances by scoring one run or fewer. Though they had the eighth-best record in baseball during the regular season, if they prevail in the Series they will have done everything Aristotelians require to call them a champion, namely winning eleven postseason games.

So, by rooting for a participant in this year's World Series you're actually participating in a philosophical debate that has been argued for centuries.

Applying Greek philosophy to baseball may sound far-fetched, but actually it's quite appropriate. You see, Plato was quite a baseball fan, and the game inspired some of his most important ideas.

"Gee, Mr. Peabody, I didn't know that Plato watched baseball!"

"Why yes, Sherman. Surely you've heard of the...allegory of the dugout?"

Monday, October 10, 2005

The Southwest Parable

I saw the most fascinating commercial yesterday. It came from Southwest Airlines and urged viewers to go to Set Love Free and join the fight against the Wright Amendment. For those who don't know, the Wright Amendment is a piece of legislation that has limited the ability of Southwest to fly from its home airport of Dallas Love Field. As the other carriers left for DFW Airport, Southwest was left with Love all to itself, which caused a backlash from the major airlines that manifested itself in legislation banning interstate flights from Love. As enacted, the amendment allowed flights to and from the states surrounding Texas, and it has since been expanded to a few more states.

Just as the natural enemy of the hole is the pile, the natural enemy of the corporation is the government. Government intervention has always played a role in the fortunes of business, but how fatal can it be? The following story is for anyone who thinks that "things would be different if only we could get Uncle Sam off our backs":

Back when the earth was young, airlines operated much differently than they do today. There were a few carriers, and the government told them where they would fly and how much they would charge. It was nice--airlines made some good money and lived a very comfortable, color-by-numbers existence.

Enter Southwest Airlines. Southwest began operations in Dallas in 1971 after fighting (for 12 years) litigation intended to put it out of business. It aimed to become a low-cost carrier for the state of Texas, but its purpose was not fully realized until the Airline Deregulation Act turned the airline industry on its ear in 1978. The act subjected airlines to market forces, which prompted markedly different responses from Southwest and the rest of the airlines.

Most airlines sought to return to the stability they had seen under regulation. They organized themselves into hub-and-spoke patterns that gave each major airline a dominant territory and allowed it to (more or less) dictate prices within that region. Sometimes new carriers would enter and serve the same routes. Sometimes aggressive pricing and airport rules would drive them away; sometimes they would stay and cause a drop in prices. At any rate, the hub-and-spoke system allowed airlines to retain some of the comfort regulation had given them.

While government intervention was ending for other airlines, it was just beginning for Southwest. Regulation was a welcome current that lifted all planes, but the Wright Amendment was intended to keep only Southwest down. But rather than flee from Love Field (which is located in the heart of Dallas as opposed to DFW's suburban location), Southwest embraced it. It has incorporated the heart into its marketing communications, and it also chose the ticker symbol "LUV" when it joined the New York Stock Exchange.

Rather than trying to mirror the days of regulation, Southwest decided to compete in a new way. Southwest went from city to city rather than using hubs, and it stayed away from the behemoth airports that other airlines were flocking to. This, in addition to Southwest's using only 737 aircraft, led to quick turnaround times and high utilization. The airline also eschewed travel agents and frills and pursued an aggressive fuel hedging strategy in allowing itself to compete on cost and offer the lowest fares in the industry.

Air travel was naturally hit hard by the events of September 11, 2001. After flights were grounded for days after 9/11, the struggling airlines were bailed out by Congress through a $15 billion financial aid package.

So, all the airlines should have vivid memories about how the government has affected their operations. Hub-and-spoke carriers will have fond memories of how the government brought them guaranteed profits in the era of regulation and then gave them free money when their ability to serve customers was called into question. And Southwest will emit a distinctive scowl as it thinks about how the Wright Amendment has, to this day, hampered its business at its flagship airport.

The effect of government intervention on the airline industry is clear. And yet, it doesn't correlate with financial results. The "big" carriers have been devouring cash for years, and no amount of money from Congress is about to change their dire collective outlook. Southwest has been profitable for 32 straight years, despite government and competitors trying to keep it down. Southwest was delighted when deregulation came, and it did not need the 2001 bailout.


It’s not uncommon for businesses to view the interference of the government as a key factor in determining success or failure. Recently, the Sarbanes-Oxley Act, an overambitious attempt to correct the wrongs of Enron et al., has become the whipping boy of businesspeople, who say that it’s hurting the ability of smaller businesses to keep up (compliance costs resulting from the act are really high). While legislation certainly plays a role, the example shown by the airlines proves that it’s not deterministic. The bigger factor (and it's not even close) is the ability of a company to adapt and to reach customers, which arguably could be retarded by the government help that many firms would love to have.

The kind of thing that Southwest has that allows it to prosper goes by many names: a business model, core competencies, synergy, a mission, a vision. Let's just call it love. And to paraphrase one of history's greatest philosophers:
If I have planes and routes and cash,
And I have help from Uncle Sam,
And I have Uncle Sam holding down the other guy,
But have not love, then I have nothing.