More On Buying Frenzies

Two things I learned coming home from Thanksgiving dinner this year: i) turkey goes well with gado-gado sauce, especially if you don’t have discerning taste buds for boring white meat, ii) there’s a buying frenzy and then there’s a buying frenzy.

This being a supposedly an economics-minded café, I’ll dwell more on the second. Watching the coverage on the door-busting sale at a neighborhood Best Buy store on the local news, and reading the tweeter feed on the chaotic Blackberry launch in Pacific Place, one looks for explanations. Aco’s post goes a long way in doing so. The people clearly were there for the deep discounts but their decisions to stand in line reflect not only their valuation of the products they’re waiting in line for but also how much they value their own time. Some of them may actually were there because they enjoy experience.

There’s a slightly different kind of buying frenzies, though, the like of which we see every time Apple launches a new product. The people standing in line in front of an iBox store are there for a different reason than those standing in front of Macy’s or Best Buy on Black Friday. Most likely, these are the people who like to be first in having everything Apple-related. No deep discounts are necessary for them. In fact they may even be willing to pay a higher price to be first. We know the type. Almost all Apple fanboys fall into this group. A lot of movie fanboys fall in to this, from the Jedi wannabes, the Trekkies, and those standing in line for hours to see Breaking Dawn (yes, you, you, and you).

There’s actually a rather classic paper by deGraba (1995)* discussing this second type of buying frenzy. The idea is that there’s a monopolist who wants to launch a new product of unknown quality. The monopolist has the option to supply enough units for the market to clear, or to deliberately ration the market and create excess demand. Often they do the latter for the following reason.

When a new product is launch, often the quality is not fully known to the potential buyers. For a brand with a fan base, limiting the number of units of the new product on the market will create a buying frenzy where potential buyers will clamor to get their hands on the "new big thing". Any fan worth his salt will try to get his hands on one. The hype is on. Anyone who wants to wait until they have more information about the product will face the threat of not getting any unit available to them. In this case, the monopolist can even set a price higher than a market clearing price. Later when the true quality of the products becomes known to the rest of the market, there’s less room for the monopolist to influence the frenzy.

So which category do people who fight over the Blackberry in Pacific Place fall into? It seems like they’re a combination of both: they put relatively lower value on their time, and they’re also the type who’s willing to take some risks in getting new products of relatively unknown quality. Some of them were probably there for the experience (well, probably not for the stampede).

How about the people standing in long line for those Cr*cs sandals years ago? Well, they clearly fall into the first category since nothing about those sandals are unknown by that time. Everybody knows they’re damn comfortable. And everybody knows they’re ugly.

Next we could discuss why people should go to restaurants with long lines in front of them.

* Patrick deGraba (1995) "Buying Frenzies and seller-induced excess demand", Rand Journal of Economics 26:2.