No One Makes You Shop at Wal-Mart
That's the intriguing title of a book I recently read, written by Tom Sleee (Between the Lines Press, 2006). Slee also has some nice ontine commenary on The Long Tail. The book is a refutation of the 'market is always right" doctrine that is so prevalent now across the board, from economics to health-care to education to consumer choice. Slee demolishes this blind trust in the wisdom of the market (what he calls MarketThink) with a number of game theory-based examples that show how the sum of rational individual choices can lead to a situation that no-one would choose as a whole. (For example, the way in Wal-Mart drives out small businesses in small towns.)
The book is well written and makes strong distinctions between choice (often between the lesser of two evils) and preference, that is, what people would really like to have, but often aren't offered.
For our purposes the book also has some interesting things to say about price signaling, and the pseudo-competition between oligopolies on prices. Signaling, as we have discussed, is system that allows companies to maintain prices without technically colluding.
As Slee points out, this signaling (based on a set of reactions to the behavior of other companies and such ploys as "guaranteed lowest price") is something that worked best in a situation where there are only a few players and the players have been laying long enough to see that when they lower prices, so do the competitors, and when they maintain them, so do the others.
An action that is apparently a gesture to customers turns out to be a signal to other companies. The consumer is simply a resource that the companies are trying to get the most out of. One way of doing this is for companies to avoid "overgrazing the commons" and to find ways of co-operating among themselves, restraining their own tendency to aggressively cut prices in search of market share by finding mechanisms of reward and punishment, That many markets are dominated by a few large and long-lived companies gives these mechanisms a chance to take hold. So companies, known for being self-interested, may still be able to co-operate over time without explicit collusion, to the detriment of the rest of us.
There's lots more in the book, which I strongly recommend.
