Friday, December 6, 2013

Do stores benefit from having sales on Thanksgiving?

This article from the WSJ describes the recent trend for stores to get a jump on Black Friday by starting sales on Thanksgiving. It is a good introduction to price discrimination, tie in sales, and cannibalization. It is also an example of a prisoner's dilemma that may reduce welfare.. 

SUMMARY: A trip with two shoppers in Albany shows that big chains like Wal-Mart are risking their customers' good will and cannibalizing later sales by pushing their "Black Friday" deals so aggressively into Thursday. "The moves are carefully calculated to help chains get ahead of online competitors that have successfully stolen a march on sales in the past couple of years, as well as outflank brick and mortar rivals in what has become essentially a zero-sum game for sales growth amid the sluggish economy."
CLASSROOM APPLICATION: The article offers an interesting twist on the models typically taught in principles and intermediate microeconomics. The article has elements of dynamic sales, timing in oligopolistic competition, and consumer preferences for purchase timing. The point in the article about cannibalization recognizes that BlackFriday demand is an economic substitute of Thanksgiving Day sales. Hence, if consumers purchase a product on Thanksgiving Day, they do not purchase it on Black Friday. With regard to retailers choosing whether to open on Thanksgiving Day, an interesting issue is whether competition drives them to do so. If consumers prefer not to leave their homes on Thanksgiving Day and retailers are not selling on the day to second-degree price discriminate (by offering a price-time menu), then the oligopolistic competition is driving retailers sell on a day that reduces consumer welfare.
QUESTIONS: 
1. (Introductory) Do consumers prefer to begin their Thanksgiving weekend shopping on Thanksgiving evening? Alternatively, would they prefer to begin the long-weekend shopping on Black Friday morning?

2. (Advanced) What factors pushed some retailers to move their Black Friday sales to Thanksgiving evening? Discuss competition from Internet retailers, competition among brick-and-mortar retailers, and the fact that Christmas is less than four weeks from Thanksgiving.

3. (Advanced) What is second-degree price discrimination? Are Thanksgiving evening and Black Friday early-morning sales a form of second-degree price discrimination in which to get the best prices consumers must fight the crowds and shop at unpleasant times?

No comments: