Unbelievable

The BBC’s Roland Buerk, speaking on American Public Media’s Marketplace news show, talking about deflation in Japan.

You know, companies start to pander to people’s needs to pay less. McDonald’s for example introduced a 100 yen — just over $1 — menus a few years ago. There’s a battle between companies to make jeans for the cheapest possible price. You can buy a pair of jeans for about $5 now in Japan. Once you’re in that downward spiral, it’s very hard to pull out of it.

Very true. Once businesses start responding to competitive pressures it’s very hard for them to (successfully) quit doing it. Thank god.

This snippet is a classic example of why Marketplace drives me crazy. It’s a great source for business news–not the stock market report, but stories on what real businesses and consumers are doing in the constant process of market adaptation–and yet they so often feature people who seem not to know even the most basic principles about markets.

[Hattip to Don Boudreaux, who, of course, >a href=”http://cafehayek.com/2011/05/the-problem-began-when-the-invention-of-the-spear-reduced-the-price-of-food.html” target=”_blank”>wrote a letter.

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About J@m3z Aitch

J@m3z Aitch is a two-bit college professor who'd rather be canoeing.
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3 Responses to Unbelievable

  1. D. C. Sessions says:

    With the caution that “cheapest” isn’t necessarily a response to competition in the “consumer gets a better deal” sense. All too often you see an advertised 10% cut in the price of a box of detergent masking a 20% cut in the contents of the box.

  2. Scott Hanley says:

    Mr. Buerck has the perfect explanation for how the consumer electronics industry crashed and burned around 1990, killing off the personal computer. And how Henry Ford destroyed the automotive industry almost as soon as it was born.

    That’s one New Deal approach I’m happy to see abandoned. Price controls were a major feature of the NRA, driven by the fear that competition as Buerck describes it would cause more businesses to fail and increase unemployment. Unfortunately, that kind of protection seems to just allow them to toddle along at lowered levels of production and not seek ways to increase sales volume (much like tax cuts).

  3. James Hanley says:

    Scott’s comment reminds me of the first time, when in grad school, I heard the phrase “destructive competition.” The very-left-leaning student who used it seemed to think it was an exceptionally important concept, but I just didn’t understand what was being destroyed. When I realized he meant businesses closing up shop under the pressures of competition, my response was, “so what?” That still is my response. I suppose one could believe that “destructive competition” would result in a monopoly taking over, but since they want to regulate businesses as a sort of cartel anyway I don’t see how the outcome would be effectively different.

    @D.C.; My favorite example of that is expanding the dimple in the bottom of peanut butter jars. The visible exterior dimensions of the jar remain unchanged while the interior volume diminishes. It’s a dirty trick, no doubt about it. But I don’t worry about it too much as long as there’s real competition in the peanut butter market. Mostly it’s just a response to inflation–because dollars are worth less, they have to get more of them from me for a given amount of peanut butter just to hold their position. Whether they give me less PB for the same dollars, or the same PB for more dollars, it works out the same.

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