Thursday, December 22, 2011

Perfectly Competitive Markets get kinda boring

This semester has been hectic enough that I haven't been able to spend much time exploring the Jimeta Modern Market, where "modern" means that it's the newer location for the bazaar. So for fun and Christmas preparation, Econolad and I took a few hours yesterday to wander the stalls, find a few more gifts, and soak up some not-on-campus life.

I was very surprised to discover that the wonderful variegated kaleidoscope of humanity at the bazaar gets rather repetitive after only a short while. The market consists of several dozen virtually identical copies of the same atomistic sellers with virtually identical products. It's a perfectly competitive market. Haggling mechanism notwithstanding, I can get bananas or cloth or whatever at about the same price no matter what stall I go to, and often without haggling. One potato vendor offered me a basket for N1000 and I just walked on. His neighbor hailed me and offered N800. Had I haggled with the first vendor, I could have gotten the same price, but because we're in a nice competitive environment I didn't even have to go to that kind of effort. Price taking behavior indeed!

While great for economic theory, it made rather quickly for a very bland shopping experience. Stall after stall selling the same things they were selling on the next row over or even the next stall over gets boring. There are a small handful of unique shops - the Cake House with high quality baking goods, the Babies World with baby necessities, two of the mass of "gift shops" that actually have children's toys - and everyone else is a virtual copy of the others.

Among the food vendors, the food items clumped together. If someone sells potatoes, they also sell yams. If someone sells bananas, they also sell watermelons and oranges (with one notable exception who specializes in very large plantains). The tomato vendors have peppers. If someone sells green beans, they also sell carrots and cabbage. Very few meat sellers have more than one kind of meat and no one who sells meat has anything else. A few large vendors manage to sell two groups (tubers and fruit), but no one does all of them. While that could be a technology issue (it's easier to grow all fruit or all veggies, but not to mix them), it's even more fundamentally a marketing and industrial organization issue. Why don't stalls combine to market greater variety? Is it a transaction cost issue [e.g. lack of contract enforcement or ethnic fractionalization], a scale issue, or something else?

In Ithaca, they complained that big box stores are bland and uniform and praised any and every small business. (Despite this, the small businesses had a very high turnover rate, which ought to tell them something.) There is nothing about smallness that guarantees uniqueness, authenticity, niche marketing, or any other hipster-beloved quality. I'm beginning to believe the arguments that niche marketing is only possible when there is sufficient efficiency and scale in the market for the other necessities to already be taken care of. This both enables and forces sellers to differentiate into a niche market.

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