11/13/2013

Shopping, Before the Turkey Gets Cold.



The article “Shopping, Before the Turkey gets cold” by the New York Times is a good example of a game theory in practice.  First off, let’s note that we are discussing a the demand curve of Black Friday products.  Could the decision of retailers to open the Black Friday deals on Thanksgiving be due to a new market that’s available only on Thanksgiving?  Not likely because customers today would buy a flat screen TV on Thanksgiving or Black Friday.  My argument for retailers opening Black Friday deals early on Thanksgiving is a gaming strategy.  Retailers can take some of their competition’s demand briefly by offering similar goods at an earlier date and time.  This will increase that company’s demand briefly for those goods and benefit the company as more revenue is brought in.  Of course this negatively affects the competition.  Therefore the competitors will also open their Black Friday deals on Thanksgiving.  Thus, opening early on Thanksgiving becomes the new equilibrium for the Black Friday deals market.  Is it possible for both retailers to go back and open on Friday?  Yes, but because the companies have already crossed the Thanksgiving threshold once, they will be tempted to open early again, and hence repeat the cycle.  We will probably see more businesses follow this trend, it’s just sad that it has to be on Thanksgiving.     

5 comments:

Nathan said...

The Black Friday culture is sure interesting, yet this article leaves me with no impression that it is a kind of prisoner’s dilemma. I see the signal of firms opening their doors earlier this year, as opposed to last year, as businesses in a perfectly competitive market. Perhaps the holiday season is a perfect time to unload the shelves with an old line of products just in time to make room for the newest line for the first of the New Year. In any regard, I enjoy waking up at the crack of dawn to steal a great deal and our family has come to embrace early Friday morning as a holiday tradition.

Dave Tufte said...

Paulo: 100/100

Paulo raises an excellent point.

Now ... here you go Utah students ... you may not like this ... but sometimes there are market failures where the involvement of the government may be helpful.

In this case, I think Paulo is right: opening earlier is a dominant strategy. But, the Black Friday game is a prisoners' dilemma. So, we get the worst outcome: stores opening earlier (and now on the holiday itself) without actually getting any more business.

A solution to this is to have the government ban that sort of competition in opening times.

MJ said...

The growth in popularity and demand in general for retail goods on Black Friday (or even on Thanksgiving day) is completely reliant on consumer's willingness to participate. Retailers continue to open their doors earlier and earlier in hopes that they will draw the zealot Black Friday shoppers before they venture to the competition. I agree that opening even an hour earlier can be proven as dominant strategy, because it is very difficult to get in and out of one store during the craze within 1-2 hours. Therefore, the first stores open will house the initial rush of customers well in to the opening hours of competitors.

I think it will be interesting to see how the next few years shift. I believe the popularity and ease of cyber shopping is much more appealing and may eventually have a more dramatic effect on the demand of brick and mortar sales. If shoppers continue to line up at the door regardless of the store's opening time, then many businesses will continue to open earlier on Thanksgiving. Government regulation may become necessary to control the frenzy, but it may not happen without backlash from businesses and consumers.

Dave Tufte said...

MJ: 47/50 (you want the adjective zealous, not the noun zealot)

I'm not claiming that regulation is necessary. But I am claiming that if you want a role for government that is win-win, then dealing with prisoners' dilemmas like this is a good start.

What gets me about Black Friday shopping (would you believe I only went once, with a cousin, in 1978!!!) is that shopping has monetary and non-monetary costs. There's a tradeoff on Black Friday of monetary savings for non-monetary costs. It's not clear to me that this is a good tradeoff for many people.

But, as an economist, I have to assume that the decisions people make represent their true valuations better than any theorizing on my part. This makes me think that there's a big non-monetary benefit to some people to shop on Black Friday: in short, they like doing it. Why is that so? It's got to be more than bargains. Perhaps it's the chance at bargains, making this a little like gambling.

Dave Tufte said...

Nathan: 50/50

Nathan's comment got lost in the ether for a while ;)

To be a prisoners' dilemma, it has to be a game first. So, is Black Friday opening a game that firms play? It is if their outcome is based on both their strategy choice, and other firms. So, yes, I think opening time qualifies as a game.

To be a prisoners' dilemma, it has to be a game in which the best (often dominant) strategy choice for both parties leads to a worse (often worst) outcome than they'd get from choosing strategies that aren't best. I think the opening time decision almost always qualifies as a prisoners' dilemma: shoppers are going to spend about the same amount at competing stores collectively ... no matter what. But costs can be increased by opening earlier, driving down profits. The only time this makes sense is when your competitor doesn't open.