After realizing that Auntie Alice wasn’t telling them the truth about her role in stealing Gloria’s sauce, Jay and Gloria head to Auntie Alice’s house to confront her about the situation. She initially tries to lie her way out of the situation, but eventually we learn that Auntie Alice is a cunning businesswoman who swooped in and patented Gloria’s sauce because she already knew that Gloria didn’t have a patent. Patents are intended to reward individuals and businesses who invest resources in developing new products, and they can serve as significant barriers to entry for competition. Owning a patent can create a temporary monopoly on a product, which in turn can generate lots of profits.
Luckily, Phil recognizes a lot of city codes that Auntie Alice is violating and threatens to alert the city if she doesn’t pull the patent for Gloria’s sauce.
Gloria realizes that a new hot sauce by Auntie Alice tastes very similar to hers, so Jay and Gloria go to the supermarket to confront the grandmother. While there, Phil tries to play tough and accidentally eats some of her volcano sauce, which is a bit too much for Phil. Hot sauces are a great example for product differentiation! They are all substitutable and differentiated by heat level, but also by different ingredients. The market for salsa is probably monopolistically competitive since price is an important factor.
A second concept covered in this clip is the role of advertising. According to Auntie Alice, she’s only the spokesperson for a larger corporation who uses her likeness as a branding strategy. The role of branding is part of why monopolistically competitive firms don’t produce at minimum average cost. The use of brands could be to signal some kind of information, but it’s not clear what signal a sweet old lady has with hot sauce. Alice hints that the company has lots of lawyers who will squash any one who challenges them, implying that the company uses this tactic to create barriers to entry. Later in the episode, we learn Auntie Alice may not be telling the whole truth!
Cam is trying to eat a bit healthier and concocts a soy-based bacon alternative called facon. Phil and Claire have to deal with an emergency, so Cam is in charge of breakfast. He insists that it his facon is indistinguishable from real bacon, but Mitch and Alex are able to tell a difference. Only in competitive markets do substitutes need to be indistinguishable from each other. If companies are operating in imperfect markets, firms can differentiate their product and still be considered a substitute.
Phil has plans to give Haley the perfect git for her 21st birthday – a new car. He has spent months doing research and planning without actually going in to a dealership. His work has been online and he landed an incredible deal. But Jay is convinced that he can do better. In this scene, Phil is sad because Jay made his deal fall through but Jay has a surprise. Jay did some hard core negotiating and beat that unbeatable deal…. or did he? Buying a car is different from many other markets. The price on the sticker is rarely what people pay. Instead, both buyer and seller go in to the transaction with the understanding that they will negotiate the price and features of the car.
It’s Haley’s 21st birthday. She and Claire have decided to get coordinating tattoos. Claire got hers first and now Haley is having a change of heart. In this scene, we see time inconsistency and imperfect information. Haley is concerned that her preferences will change over time so she decides against getting the tattoo. Meanwhile, Claire already regrets her tattoo because Haley won’t be getting one – but it’s too late for Claire. Tattoos do not have a return policy! If Claire had known that Haley would change her mind, she would not have gotten a tattoo (imperfect information). This clip can also be used to compare and contrast two types of games in game theory – sequential games and simultaneous games. If you decide to get a tattoo with a friend but only because you’re doing it with a friend, make sure you get them simultaneously!
Manny lost Luke in a “sketchy” neighborhood. He and Phil enlist Gloria’s help to track him down. When they arrive in the neighborhood, they find that it has changed quite a bit since Gloria lived there. When searching for a girl, they have the option of visiting one of the four area cupcake stores, each specializing in a different area.