The role of shopping in the economy is easily misunderstood. That was clear in the patter of a TV reporter in a story about the pre-Black Friday sales that started on Thanksgiving Day. She asserted that such sales were good for the U.S. economy because higher levels of consumer spending are necessary for faster economic growth. So more stores opening earlier would give the economy a needed boost.
For the economy to grow, and thus for the number of people with jobs to increase, output must indeed increase. And household consumption of goods and services is by far the biggest component of total national output or Gross Domestic Product. Greater consumption is one way of increasing GDP. So to that extent, the reporter was right.
That does not mean, however, that an even earlier start to holiday sales promotions will increase total consumption much. To conclude that would be to commit a "fallacy of composition," which teachers of introductory philosophy and economics courses warn against.
This fallacy consists of erroneously assuming that what is true for an individual is necessarily true for a larger group: If you are at a basketball game and stand up to see the action better, does that mean that if everyone stood up, everyone could see better?
In holiday retailing, if one store opens earlier than the rest, it will sell more than its competitors. Therefore, would all stores opening earlier mean that all stores would sell more, thus increasing total consumption, and thus GDP, and thus employment?
The answer could be yes only to the extent that consumers' overall spending is somehow constrained by the total number of hours stores are open or sales are in progress. I doubt that is the case even for the most addicted shopaholics. So ever earlier sales don't help the economy much, if at all.
Retailing is intensely competitive. Even though large chains like Target, Wal-Mart, Best Buy and others have large market shares, that does not translate into the ability to make monopolistic profits the way it once did in steel or airlines or broadcast television. That is because there are few "barriers to entry" in retailing as there are in more capital-intensive industries. This is especially true in the digital age.
Retailing is a "contestable market" in the phrase coined by Bill Baumol, the New York University professor who was one of the most prolific micro-economists of a generation. Yes, the big retailers do enjoy some economies of scale in logistics and advertising. And yes, their well-known corporate brands do make people think of them when considering where to shop.
But many people are quite price conscious and are willing to put time and effort into finding good deals. And the cost of finding deals is falling with Internet searches and cellphone apps that facilitate price comparisons.
So even the biggest boys cannot raise prices very much or they rapidly lose sales to newer, smaller and more aggressive or innovative competitors. They can be challenged and thus these are markets in which new entrants can contest the status of established giants.
This is an old process, an example of what the Austro-American Joseph Schumpeter economist called "creative destruction."
Online retailers like Amazon are taking sales from big-box specialists like Best Buy. These big box firms in turn took market share in electronics or other specialties from full-line chains like Target and Wal-Mart. These had gutted predecessors like Kmart that pioneered the format but could not keep their lead. Kmart had eaten the lunch of Sears and Montgomery Wards that had grabbed market share from older Main Street retailers of a previous era.
The process is inexorable. Anyone remember discounter E. J. Korvette, heralded on the cover of Time magazine in 1962 as the wave of the future? It was bankrupt by 1980. Best Buy nearly repeated Korvette's meteoric rise and fall.
This market contestability means that retailers are engaged in a variation of the "prisoners' dilemma," in which the optimal thing to do depends on what you think the other players will do. Just as the prisoners will get off lightly as long as all of them are stand-up guys, retailers as a group would sell just as much if no one opened at 6 a.m. on Friday, or at midnight on Thanksgiving or even the day before.
But if one prisoner sings, all the rest go up the river and do hard time. If one retailer opens early with doorbuster specials, the others do lose overall sales to this defector. So if one makes a big deal out of Black Friday, the rest all must too. If one then moves the starting line back to Thanksgiving itself, the rest must meet its raise.
But this self-defensive jockeying for some small advantage from ever-earlier promotions does very little to increase overall consumer spending.
So while one individual retailer may benefit from opening on Thanksgiving itself, society as a whole does not.
Indeed, society may be worse off. Tens of thousands of stores opening on a holiday for which their employees traditionally could take off means that hundreds of thousands of people cannot be home with their families. This has a social cost even if not measured in monetary terms. But any retailer that bucks the trend and tells its workers to stay home and enjoy fellowship with friends and family will pay a price.
Many European nations, meanwhile, drawing in part on Catholic social thought, long regulated store hours to avoid inevitable external cost to families stemming from a free market. This wouldn't be acceptable in contemporary U.S. life. But let's not fall for the idea that ever more aggressive holiday retailing is a great plus for our society.
Economist Edward Lotterman teaches and writes in St. Paul, Minn. Write him at email@example.com.