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How do markets set the profit-maximizing level of air conditioning?
Ben M, a loyal MR reader, asks:
How does an office/shopping mall/theater decide how low to set its air conditioning? It seems like they've found a bizarre and expensive equilibrium where the "normal" indoor temperature is 63 degrees (in August) and everyone carries an extra long-sleeve layer to keep warm. How did it get this way, and is there some way to fix it?
This is perhaps the most common European complaint about visiting the United States, noting that they also don't like ice in drinks and think freely circulating cold air can kill small babies.
I believe the goal of high-powered AC is to give customers the feeling of luxury, the feeling that anything can be afforded, and the feeling that the store will spare no expense toward the end of comfort. I do not believe that either the average or the marginal buyer actually -- marketing effects aside -- prefers that temperatures be so low. This implies that low margin stores will set the AC at lower levels; does anyone know if this is true? For instance businesses offices should be somewhat warmer than Nordstrom or Macy's.
I find many movie theatres to be infernally cold, perhaps because they seek to be viewed as a respite from the summer heat. Appealing to dating moviegoers, who may wish to cuddle together, or be forced to do so, may be another reason.
And still I wonder why it is so loud in the pachinko parlors...
Posted by Tyler Cowen on May 29, 2008 at 07:05 AM in Economics | Permalink
Comments
What? You've never heard of fan deaths: http://en.wikipedia.org/wiki/Fan_death
The article suggests it's just in Korea, but this "phenomenon" is known in China as well.
Posted by: Kevin Miller at May 29, 2008 6:14:55 AM
Those explanations might work for stores and malls, but just as bad if not worse are offices. I've never yet worked in an office where I didn't practically freeze coming in the front door in the summer. It's not as though there are customers to impress with the luxury; it's mostly just an annoyance.
Posted by: Grant Gould at May 29, 2008 6:28:19 AM
My experience in cinemas, shopping malls, etc, is that the emptier they are, the colder they are. So could one explanation to this be that the huge air conditioning units are scaled to handle the "peak" demand for cooling?
Posted by: Johan at May 29, 2008 6:33:08 AM
what I find inexplicable is when a work facility's AC is way off the mark - either blowing furiously when it's actually cold
out, or underperforming during a sudden heat wave - and the explanation I hear is that it's because the facility's temperature
computer lags in reacting to quick changes. But that's why I thought we use computers - to make the processing quicker and
reaction time finer? If you'd grown up in the greater DC area in the summer, riding your bike to a Super Giant so you could
loiter a few minutes in the refrigerated aisles is quite memorable. AC has truly made living in much of the South and South-
west bearable. And heatwaves are a top killer of many rural and inner-city folk. AC's the greatest invention next to the
automobile (in non-medical terms, of course).
Posted by: TomG at May 29, 2008 6:35:13 AM
Here's a theory. If you know ahead of time that a restaurant will be too warm for your taste then you might choose not to go, but if you know that it will be too cool then you'll just bring more clothes. And if you don't know about the temperature ahead of time, by the time you find out about it in the restaurant you're already locked in to the purchase. So restaurants are biased towards setting the temperature on the low end of the range of customers' preferences, since that chases fewer customers away. This implies that the thermostat will be set higher at places like retail stores where you're free to walk in and walk back out, because in that case a too-cool temperature can drive people away.
Posted by: Blar at May 29, 2008 7:09:23 AM
"Europea[s] ... think freely circulating cold air can kill small babies"
Is that your personal experience? I always thought that particular superstition applied only to Germans?! (Well, and Romanians, for some reason.) The first grave cultural difference I noticed when I first left Germany for a longer time (for the Netherlands) was that people would open wide the windows in the train even if (or, precisely because) that meant heavy air flows inside the coach - unimaginable in Germany.
As for AC, in those German trains that have it (most, nowadays), temperature is also always unusually low. In summer, I (and as I noticed, other people, too) would even bring an extra piece of clothes that would not be needed outside the train, because it would simply be too cold inside to sit there just with shorts and a t-shirt. This always struck me as odd, but I noticed knowing "If it gets a little warmer in here now, I can still take the second layer of clothing off" is a lot less worrying than knowing "if it gets a little warmer, I will start _sweating_". This can be interpreted as an early stage of the postulated "feeling of luxury", I guess.
Posted by: arne b at May 29, 2008 7:15:54 AM
I think Johan and Blar have hit the answer on the mark; the auditorium may be cold when it's 10% full, but that's much easier on the patrons than it being hot when it's 90% full (in part because it's easier to warm up than cool down, and in part because 90 hot people = 90 complaints max, while 10 cold people = 10 complaints max).
Plus HVAC systems are relatively slow when it comes to adjusting temperatures, particularly ones that are quiet enough to not disrupt the patrons. You could blast air into the auditorium (or restaurant), but I doubt patrons came to listen to the compressor, fans, and airflow.
Posted by: Chris Lawrence at May 29, 2008 7:22:28 AM
An interesting corollary: as a southerner, I find that most people north of the Mason-Dixon line set their heat way too high. I realize it's cold outside, but that's no reason to turn your house into a blast furnace. (I think most southerners prefer lower humidity to higher temperatures, all things being equal. Yankees in the winter combine too-low ambient humidity with too-high temperatures, and suddenly we're all scrambling for moisturizer.)
Posted by: Chris Lawrence at May 29, 2008 7:27:03 AM
Similar to the 10/90 comments, in most places I've spent significant time that has AC (i) the system equilibrium shifts drastically due to external humidity and sunlight (ii) there are always 'hot' and 'cold' parts of the building, specially where the interiors have been repartitioned so the AC/heater layout doesn't match the new room layout
I think there has to be a business in designing a control system that actually works consistently across conditions and interior locations -- think *lots* of cheap micro-sensors distributed around a building, with a computer using a decent model to control things, if only because of the likely savings in energy costs.
In fact the most comfortable building I've been was designed to self-circulate and used almost no A/C, but opened and closed vents at foot and ceiling level according to the weather, so you had the luxury of fresh air in moderate weather. I think this was designed somewhere in Scandinavia.
Posted by: jonm at May 29, 2008 8:11:47 AM
I'm surprised no one has mentioned obesity. In my experience, obese people invariably want the temperature a few degrees lower, since they sweat more readily.
Posted by: at May 29, 2008 8:37:14 AM
I just think it's why in US everyone eats so fast - you're all in danger of your food getting cold! My wife (American) loves the fact she can take her time over her meal and not worrying about it being stone cold in 3 minutes due to the AC....or maybe it's just the Vegas factor, keep you awake to gamble (or shop).
Posted by: Paul Holmes at May 29, 2008 8:49:50 AM
I have been told by at least two people that restaurants are kept cold for the comfort of the workers not the customers. The servers spend time in the kitchen and are also physically active, so they are warm.
To be more cynical, I'd hypothesize that restaurants want turnover. When you rush in the door, the A/C feels good. After an hour of dining and drinking cold beverages, the cold (and the noise and visual overstimulation) begin to irritate.
Posted by: Andrew at May 29, 2008 9:10:05 AM
I think that when I read this think freely circulating cold air can kill small babies it was the first time that I laughed out loud reading your blog.
Maybe because others can put a sweater on, control of the air conditioning goes to the person who wants it coldest.
BWT there is evidence that air conditioning contributes to weight gain.
Posted by: Floccina at May 29, 2008 9:13:19 AM
What does this say about the complainant?
Theory: Buildings have a thermal mass. They get hottest around 3-5. The theater pumps up the A/C earlier in the day when the crowds are thin so the theater will still be cool by the time the seats are packed.
Psycho T goes to matinees.
Posted by: Andrew at May 29, 2008 9:20:59 AM
Tyler is correct, at least for retail stores. The New York Times did an experiment on this a couple years ago where a reporter visited a selection of Manhattan retail stores and found a strong inverse relationship between the temperature and the prices of the store. Here's the link for anyone interested:
http://www.nytimes.com/2005/06/26/fashion/sundaystyles/26air.html
Posted by: Old Greg at May 29, 2008 9:24:27 AM
Not sure why that last post turned up in italics. Whatever.
Tyler, is there anyway you could get John Nye to guest blog?
Posted by: Old Greg at May 29, 2008 9:26:06 AM
"infernally cold" ?????
As in colder than hotter than Hades
Posted by: Spotcash at May 29, 2008 9:28:24 AM
Stores in NYC have been criticized for blasting the A/C while having the front door wide open while we often are faced with brown outs in the summer. The blast of cold air coming out on the sidewalk while you walk past does feel good but it doesn't really have the intended affect of getting me to come in the store. But it must work if they are willing to spend the money.
I agree that obesity is part of the problem. I had a fat roommate once that kept turning the temperature in our apartment down to 65 which I would then proceed to turn up to 75. He did seem to sweat a lot at that temperature.
I would suspect that another factor is that as a total cost of operation, energy costs are not significant for a retailer. So therefore the thinking would be that it isn't worth the miniscule cost savings at the expense of possibly losing out on some sales.
In the US we use mainly central air systems in commercial building. As mentioned, building are not of equal temperature in all locations. But central air can only maintain the temperature of one particular location, where the thermostat is located. Also one's proximaty to the source of air makes a difference.
Commercial buildings in Japan do not usually use central air. They use multiple units, approximately 1 on each floor. Since there is a system on each floor upfront installation costs in new buildings are higher but ongoing energy expenses are lower as adjustments can be made on a per floor basis. Construction in the US is usually focused on minimizing upfront costs at the expense of ongoing operating costs unless the payback period is 2 years or less. As Europe decides to retrofit A/C into old buildings the Japanese system tends to have a lower upfront cost compared to central A/C due to easier installation - a win-win situation.
Posted by: asiequana at May 29, 2008 9:35:18 AM
Cold Houses in Warm Climates and Vice Versa David Friedman
Houses in cold climates are kept warmer in winter than those in warm climates, despite the greater cost of heating in colder climates. It is shown that this is not only consistent with but implied by rationality. The contrary intuition is based on a confusion between average and marginal cost. The same analysis implies that it is rational to keep the thermostat setting constant throughout the heating season, rather than changing it with changes in external temperature.
Posted by: Alex J. at May 29, 2008 9:47:22 AM
In many industrial applications water is chilled centrally, cooled below the needed temperature and pumped to its destination. How cool is partly governed by how much heat is absorbed in pumping to the furthest building. Each building then operates a heat exchanger, and zones within the building run heaters to warm the resulting air to a comfortable temperature. So often the energy efficient move is for the building (especially ones close to the chilling facility) is to run cold.
Posted by: anonymous at May 29, 2008 9:54:20 AM
Infernally cold? Hmm.
Posted by: Matthew Petersen at May 29, 2008 10:09:18 AM
For a long time I blamed freezing office spaces on the differential between male and female business dress. Guys have, year-round, undershirt + long-sleeved dress shirt + tie (aka scarf) + jacket, usually in wool or wool blend, since it doesn't seem like many men have seasonal suits. The high-powered office people being majority male, their sentiments on the AC level would tend to trump those of younger, less senior female employees shivering in their skirts, seasonally appropriate cotton or linen fabrics, and short-sleeved or sleeveless tops (even with a suit jacket).
Then I worked at an office in which even relatively senior male employees who wore suits and ties every day had space heaters under their desks, and I junked that theory.
Isn't cold air typically thought to be more stimulating? You wouldn't want people warm and drowsy in an office or a movie theater. Also, nothing says "low-class" like the smell of sweaty customer.
Posted by: Amber at May 29, 2008 10:26:22 AM
I worked on a project advising a national chain of department stores (90 million sq ft of retail space) on cost reduction project back in 1998/99. One of the projects we worked on was to determine if changing a stores temperature had any impact on sales. The answer was that, yes, there seemed to be a correlation, too warm or too cold lowered sales, nothing surprising there, and that the target temperature would be just slightly cool, 68F. What was also interesting was the importance of air circulation into areas with intense lighting, certain areas such as jewellry and clothing sold better with pretty intense warm lighting, but the increased heat load would concurrently lower sales. The net was that they were able to target the right store temperature, the right lighting, and then work on improving air circulation to specific store locations.
My guess as to why you find stores running at 63F would be to manage an inadequate circulation syustem and get close to 68F in the literal hot spots under the warm lights in high margin departmetns.
Posted by: David Rotor at May 29, 2008 10:52:29 AM
It's usually around 68-10, not 63 degrees. I keep my home at 66-67 because that's how I like it. But Houston is the a/c capital of the world (or so they say) and I've never been to a store that felt too cold. If anything, most places are a little on the warm side. And no I'm not obese. I just love cold air. I don't see how anyone even lived in Texas before a/c. Surely a/c is the greatest, most important invention in the history of mankind. It made the entire earth not only habitable, but comfortable.
Posted by: bruce at May 29, 2008 11:20:22 AM
In Boston in the winter it is warm indoors, too warm.
In Birmingham in the summer it is cold indoors, too cold.
These anecdotes may help to describe the state of hospitality in each place. I don't know why it would be too cold in Boston in the summer, but I have never experienced that (any evidence is appreciated).
Having lived in Berlin last summer, I noticed 3 days where AC would have been nice, but overall it would have been a useless expense. I wore long hiking pants most days, something that is not possible in Fairfax during the summer. I assume that Europe has the correct strategy based on my observation, my model would suggest that AC is more popular where the temperature is above X, Y days out of the year.
In offices, as long as it is men's fashion to wear wool blend suits, the temperature of 68 indoors seems right to me -- summer and winter. I would understand why women in linen dresses which are appropriate for the external temperature of 88 would feel cool indoors, but it doesn't make sense to me that the people wearing the long wool pants and coat should sweat in order to have the indoor temperature conducive to linen dresses. There seems to be a major mismatch between wardrobe demands between the sexes.
Posted by: at May 29, 2008 11:47:36 AM
