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Classification Arbitrage

In economic contexts, "arbitrage" involves taking advantage of a price difference between two markets - you buy where the price is low and sell where the price is high.  A recent NY Times story discusses what we might call "classification arbitrage" - choosing a classification that gives the classified resource some property or advantage that another classification won't provide.  The story, titled "In a New Aisle, Energy Drinks Sidestep Some Rules", says that Monster Energy has changed its self-classification from "dietary supplement" to "beverage".

So what?  It turns out that dietary supplements are regulated by the US FDA, and beverages aren't.  So by changing the classification Monster no longer needs to inform the FDA about reports that link its high caffeine levels to health risks.

-bob glushko

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