Monday, August 21, 2006

Nobody makes you shop at Wal-Mart...

In the book No one makes you shop at Wal-Mart by Tom Slee some of the dynamics of choise is presented...

First of the classical view:

It is now conventional wisdom that individual choice tames the wild tigers of private industry, and that free markets provide the mechanism for it to do so. Our ability to walk away, to choose not to buy what they are trying to sell, is the ultimate source of power in a free-enterprise society. The economy is a great democracy in which we cast our votes not once every few years, but each and every time we make a purchase. In the face of our choices, business has no choice but to respond to our demands, or even to our whims. Adam Smith's "invisible hand" of the market guides them to carry out our bidding. Brand-name companies, for example, are powerless in the face of individual choice. The British business magazine The Economist points out that "Brands do not rule consumers; consumers rule brands." According to one corporate consultant the magazine quoted, "When we like a brand we manifest our loyalty in cash. If we don't like it, we walk away. Customers are in charge."
...choice is useful only if it helps you to get what you want. And the thing is, it often doesn't.

The book presents a good example of the dynamic inconsistency that may arise with regards to choises:

Jack lives in Whimsley. Some time ago Jack used to do most of his shopping in the downtown area--of course, he no longer does--and he also used to walk through the downtown before crossing Whimsley Park on his way to work.

Jack shares an eccentric trait with the other inhabitants of Whimsley: he has an odd way of making choices. As he goes about his daily life, when faced with a decision he assigns numerical points to the benefits and costs of the available options, and he chooses the option that gives the most points.

Let's follow Jack's reasoning as he thinks about what life was like when he shopped in the downtown area.

Value. I did much of my shopping at the two downtown department stores. They provided reasonable selection and price. They were worth two satisfaction points per week.

Variety. I liked the variety of the two stores. Sometimes I went to one store, sometimes the other, depending on what I needed, how much time I had, what other errands I had, and so on. The variety of having two stores was worth an additional two points.

Atmosphere. I assigned myself another two points each week from my enjoyment of the thriving downtown as I walked through it on the way to work.

Jack was happy to the tune of six points per week: two for selection and price, two for the variety of shopping options he had available, and two for the atmosphere of the thriving downtown.

A few years ago Wal-Mart opened a new store on the outer edge of Whimsley. Wal-Mart has huge economies of scale and tremendous bargaining power with its suppliers, and thus is able to offer the lowest prices. Like any consumer, Jack likes low prices. So Jack started shopping mainly at Wal-Mart.

For a while things were pretty good. Jack was happier because of Wal-Mart's arrival in town. Here is his reasoning.

Value. By shopping mainly at Wal-Mart I not only continue to have a reasonable selection but I also get lower prices. So I give myself three points per week for price and selection, instead of the two I used to get by shopping at the downtown stores.

Variety. What's more, Wal-Mart has extended my range of options: I assign myself an additional satisfaction point for the extra variety that Wal-Mart introduces, because on the days I don't feel like trekking out to Wal-Mart I can still visit one of the other stores and get what I need.

Atmosphere. There is no change to the atmosphere of the city, so I still get my two points for atmosphere.

Soon after Wal-Mart arrived, then, Jack was getting eight points per week: three from Wal-Mart's selection and everyday low prices, three from the expanded variety he has available, and, as before, two from walking through the lively downtown to work. Jack was happier than before Wal-Mart built its store.

* * *

Of course, Jack was not the only person in Whimsley to be making choices, and that is where his problems started. Like him, many other people started to shop at Wal-Mart. The smaller department stores downtown started to have troubles, and gradually they went out of business.

Wal-Mart became the only department store in Whimsley. Jack had to shop at Wal-Mart all the time, like it or not. As a result, Jack's points for variety moved down to just a single point. Jack wanted more variety, but instead he got less. With the closing of the downtown department stores, Jack was down to six points per week again. He was as happy as before Wal-Mart came, but no happier. That's not too bad. At least Jack was no worse off than he was before.

But Jack's problems did not stop there. Once the downtown department stores closed, the slower customer traffic in the area meant that other stores closed too. Now downtown is not so interesting anymore: a number of shops are boarded up, others have been replaced by dollar stores, and the buildings are shoddy. Jack does not enjoy walking past the rundown area on the way to work. It gives him no pleasure. No points.

Now Jack has only four points per week. He is less happy than he was before Wal-Mart came.

In the beginning Jack made a choice that he believed would make him happier, but now he finds that he is less happy.

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