Wednesday, April 24, 2013

Streets, Malls and Department Stores

Normally, I run from PBS dramas.  However today (by way of Lynne Kiesling) I heard about a new show titled “Mr.Selfridge” that sounds quite interesting.  The show is about American department store entrepreneur Harry Selfridge, former partner in Marshall Fields, who is building a new department store in London.

Lynne pointed her readers to an article by Virginia Postrel titled, "How Mr. Selfridge Created the Modern Economy".  Commenting on the significance of the department store concept, Postrel writes: railroads and telegraphs, the department stores of the late 19th and early 20th century were socially and economically transformative institutions. They pioneered innovations ranging from inventory control and installment credit to ventilation systems, electric lighting and steel construction, along with new merchandising and advertising techniques. They brought together goods from all over the world and lit up city streets with their window displays. They significantly changed the role of women, giving them new career opportunities and respectable places to meet in public. They popularized bicycles, cosmetics, ready-to-wear clothing and electrical appliances...
To this list of impressive contributions, I will add one more important institution that allegedly developed in department stores--the posted price.  Prior to this, haggling was a common practice in retailing.

Postrel's piece reminded me of an article I read in grad school by Vernon Smith and co-authors titled, "A Comparison of Posted-Offer and Double-Auction Pricing Institutions."  In the intro to that article those authors write: 

The institution of posted-offer pricing is a market mechanism in which each seller "posts" a selling price at the beginning of each trading period....Although [posted-offer pricing] dominates almost all retail markets in the United States, it is a comparatively new pricing mechanism whose ascendency is associated with the retail innovations of R.H. Macy and F.W. Woolworth in the last half of the nineteenth century.  These new mass retailers replaced the small owner-operated general store, with an organization which separated the clerical, management, and ownership functions.  Since sales were made by large numbers of clerks, the take-it-or-leave-it posted price replaced the "haggling" that had characterized pricing in the general store (Marburg (1951), p. 527) 
 Thus the concept of the department store was truly revolutionary and I am hoping that this PBS show lives up to the hype!

Tonight in my Industrial Organization class we're moving into a new topic, "spatial organization."  My lecture builds off of Chapter 1 from Jan Brueckner's new Urban Economics text, which highlights how the economic explanation for cities lies in decisions made by firms.  Thus there is a natural connection between industrial and urban economics and tonight I will argue that there are a lot of interesting questions to explore at the intersection of these two sub-disciplines.  These were two of the fields I studied as a graduate student and lately my interest in working at this intersection has become reinvigorated.  For tonight, I will even pull out another paper from my graduate school days which is a great example of a study at the intersection of industrial and urban economics.  In "Streets, Malls, and Supermarkets," Howard Smith and Donald Hay develop a theoretical model of competition among these three types of shopping centers.  It would be very interesting to develop an empirical study along these lines.  I'm hoping one of my students will come up with a good idea for how to do it!

Select references (to make people's lives easier!):

Ketcham, Jon, Vernon Smith and Arlignton Williams, "A Comparison of Posted-Offer and Double-Auction Pricing Institutions" in Papers in Experimental Economics by Vernon L. Smith, Cambridge University Press, Nov 29, 1991

Marburg, T. (1951), "Domestic Trade and Marketing", Chapter 26 in H.Williamson (ed.) Growth of the American Economy (Englewood Cliffs: Prentic-Hall, Inc.) 511-533.