As you read this, you probably know people who are out hunting bargains in these first days of sales promotions leading up to the holidays.
If you work retail, you’ve probably already put in some long hours and can will do so again in coming weeks. You also may be watching news reports on retail sales so far, together with speculation about prospects for the season.
All this hoopla about “Black Friday,” and the days surrounding it has become a fixture of U.S. popular culture. But from the point of view of society as a whole, is it really all that important?
Do practices such as stores staying open at odd hours of the night or on Thanksgiving Day result in households getting more value for money, compared with what was usual before all of this started? Are retailers as a whole more profitable or do their workers have higher incomes?
The answer to all these questions is probably not.
But, given the structure of retailing, the competitive forces that have led to our current situation are powerful and are not going to reverse spontaneously.
Government might act to limit social harm as it did in the past and still does somewhat in Europe. But such limits on the autonomy of private businesses and of individuals run counter to the ethos of our age and buck a trend that is strong, even in places like Germany that long has regulated shopping hours and conditions.
There is some interesting economics in all of this.
Start with the topic of industrial organization. This deals with the number of firms producing or selling a specific product and the degree of competition among sellers.
The polar extremes are “pure monopoly,” when there is only one producer-seller, and “perfect competition” in which there are thousands of sellers and none has the ability to influence market price.
Pure monopoly is rare, limited to regulated utilities or to products like nuclear submarines. Perfect competition is common only in agriculture. Most other businesses fall into two intermediate categories.
Oligopoly is a market structure dominated by a handful of firms, as in passenger aircraft, automobiles or mobile telephony. Most large corporations operate in situations of oligopoly.
“Monopolistic competition” is the situation familiar to most households, because it is the dominant situation in consumer retailing. This can involve many firms and a high level of competition, but it falls short of all the criteria needed for “perfect competition.” Often the only real difference is the existence of a brand identity. Most companies that sell food, clothing, gas, meals eaten out, etc., to households, are in monopolistic competition, at least at the retail level.
Competition is intense and typically involves other factors — such as quality, location, convenience or a distinct brand — as much as product prices. And if one competitor introduces some popular innovation, such as new store hours, the rest have to respond quickly.
Once one burger chain introduced drive-up windows, the rest had to follow. One grocery chain beefs up its deli section, others have to follow. If one gas station has 16 or 24 pumps to minimize waiting, the one across the intersection with only eight must catch up or perish.
Just as the prisoner in the classic “prisoners’ dilemma” game will be in trouble if his accomplice cops a plea and he doesn’t, likewise retailers are in trouble if competitors up the ante and elicit no response.
Some years ago, when one chain announced it was opening at 5 a.m. the day after Thanksgiving, the rest had to do the same or see their opponents grab market share. Once one added “door buster” sales prices, even for limited quantities of product, the others had to follow or even outdo the new tactic. Opening times became ever earlier and now many stores are open on the holiday itself.
The store that steals a march on its competitors may see robust sales until the competitors respond in kind. But profitability of all such stores as a class does not go up. In fact, cutthroat discounting might drive profits down in an already thin-margin sector.
It is a classic example of a fallacy of composition, a situation in which what may be true for an individual is not true for a large group. If one store opens earlier or extends its hours, it may increase its profits. But if all stores open early, they won’t all increase their profits. In fact, because they have to spread the costs of keeping the store open for more hours over a fixed amount of sales, profits may slide.
Consumers do get the convenience of more shopping hours. But the holiday season already is long enough with hours ample enough so that adding another 20 to 30 hours is of little benefit to most buyers.
The highly advertised door buster specials do accomplish “price discrimination,” by separating customers willing to tolerate congested stores for super deals from customers — like me — who would rather shop when traffic is slow even if we miss out on special buys. In theory, being able to price discriminate can raise profits for sellers, but there isn’t much evidence that this is true in this case.
Some employees like the extra hours. But others resent having to leave family gatherings to operate a cash register or, heaven forbid, risk life and limb by opening the front doors to avid bargain hunters at some awful hour.
But they have little choice. Employers have the upper hand in today’s labor market. For many people, if you want to keep your job, you’d better show up when scheduled. Employers defend themselves by noting they have little choice: When their competitors are open, they must be, too. Some store chains also note that many employees volunteer to work Thanksgiving because it pays more and they like the excitement.
In the past, states and municipalities had laws that required Sunday closing and limited hours, as does Germany. These fell by the wayside in the U.S. in the 1960s and 1970s.
The closures stemmed in part from religious sensibilities about resting on Sunday. And, especially in Europe, Sunday closings reflected a Christian social thought that employees should have some respite from their jobs and competitive forces would prevent that in the absence of government rules.
This worked better in the days when most fraus stayed in the haus and when small kitchens and lack of refrigerators meant that one had to shop for groceries on a daily basis. But as more women entered the work force, limited shopping hours became a burden.
Econ students learn how monopolistic competition entails economic inefficiency. Firms overinvest in gas pumps, checkout lines and even whole stores. But it usually is the least-bad option, because it is not clear that any regulation by government could improve efficiency. Moreover, telling business people when they may or may not sell and telling consumers when they may and may not buy is an infringement of individual liberty that is completely out of synch with 21st century social and political mores.