Friday, November 25, 2011

Economics of queuing, again

I'm in a seminar and I'm bored. So I just checked Twitter and saw some people tweeting about a long queue in some mall in Jakarta. Apparently they are standing in line for the newest Blackberry product or something. Why queue? Wait, let's step back: what is queue? Or more precisely, what does a queue imply? From an economist's point of view, queue is a signal that the good being sold is under-priced (of course, why else do people want to queue?). You see motorists are queuing on a gas station? That's because the price is too low. You see people form a long snake to buy Crocs? Must be because it is being sold in a heavily discounted price.

In other words, queue reflects price distortion - in that case, the price does not tell you correctly the number of goods being sold (i.e. the supply). When the price is lowered, people/consumers will naturally think that the quantity sold is a lot. That's the law of supply: (for normal goods) supply increase will lead to price decrease. When this holds, you don't see queuing. But, because the law is violated - supply does not change (or even: reduced), while the price is cut, then you *should* see some queuing. Those who stand in the queue either think that the goods are many, or are full well that the supply is limited but is driven by a mere .. hype (think about Apple iPad's launching - that's hype*).

So: what do we expect when a good is priced too low contrary to the level it should be (i.e. the one driven by the market)? A queue. Put it another way, what is a queue telling you? That the price of some good is not normal (or that some people are hyped). 

But now let's push it further. Are people so shallow so as not to understand this? Well, actually no: they know it. They are just willing to trade some of their time and energy for the discounted price. If one can factor these in, he or she will actually find that the price is not as cheap as the store declares. What are other hidden costs of distorted price that leads to queuing? Impatience, stampede, quarrel - and even death (remember the story from China in 2007 when somebody died after a brawl over queue-jumping in a gas station?)

Now, why are some people not willing to join the queue? Can be because many things: they value their time more than those standing in the queue do, they know that queue means price distortion and hence an artificial sign that has hidden costs, or simply because they are not affected by some crazy hype. 

Or they might be participating in a seminar, albeit bored. 

1 comment: