One of the local sports round Perpignan, where we’ve just bought a house, is going to village flea-markets on Sundays. They don’t go in for car boots: trestle stalls are rented cheaply by the organising villages, so the atmosphere is pleasant, even for a reluctant shopper like me. This is Latour-bas-Elne. On a given Sunday, there are half-a-dozen such dos.
How do flea markets by amateurs match up against the idealised markets of Walras and Arrow? There are no real barriers to entry – the stall space goes for €5 or so, barely enough to cover the cleanup. The goods are all different, though similar within a category (vases, chamber pots, old vinyl records). The prices are arbitrarily set by the vendor, and possibly haggled. There are no equilibrium prices, unless you relax the concept so that every sale is an equilibrium by definition. The market does not clear: much, possibly the majority, of the stock is unsold at the end of the day, and either goes to the next flea market or is junked.
At a first glance, the activity does not make sense as a way of making a living. The minimum wage in France is €9.6 an hour, the average €14. A typical stallholder has to put in €100 worth of work before she starts earning. Most vendors are there because it’s fun, and are not pricing their time. Subjectively, the stuff in Granny’s attic isn’t worth anything, and selling it is getting something for nothing. The shoppers are not driven by necessity either. Some just like shopping, others are looking for a bargain, or a specific gewgaw like a horse brass. The lack of pressure on either side – in contrast to the Moroccan souk – makes the experience relaxed.
It prompts some questions for economists. The flea-market is inconsequential, but it is a real market; and it does not look very like the textbooks. A revolutionary suggestion to the profession: go and observe some actual markets. Their differences from the textbook models might be illuminating, no? A few suggested questions to get started.
What are the subjective costs and benefits of trading? People vary a lot here. I basically dislike the activity of shopping – looking round to see what’s available for sale – and Lu enjoys it. Similarly some (I suspect far fewer) enjoy haggling, and more dislike it. This won’t matter much if the variations are random. But this is unlikely. We all shop as consumers because we must, like it or not. Vendors choose the profession, and are far more likely to enjoy the activity.
Take it to high-pressure markets like open-outcry commodities markets, and the only people who can stand the work are psychological outliers, quite unrepresentative of the general population. And they think of their strange work as the norm, and proselytise for its extension.
In a typical retail market, vendors who enjoy the work meet buyers many of whom do not. (In a wholesale one, they will be the same sort of people). I suggest that this asymmetry systematically works to the disadvantage of consumers like me. We take the second decent deal rather than spend another two hours finding the best one. The constraint on vendors in fixed-offer markets rather than haggling ones is the minority of keen price-sensitive shoppers. Luxury shops can ignore them completely, Walmart and Carrefour have to keep them coming, hence the special offers. So real markets generate a vendors’ rent from consumer distaste, and often a price spread from haggling. How big is the effect? In some markets like hotel rooms, probably large.
Another general problem needing data is market clearing. Financial markets clear by definition, as they are about assets and somebody ends up with them at day’s end. In markets for goods and services, non-clearing is the norm. Airlines have managed, by heroic feats of computer-aided price discrimination, to raise load factors so that every flight is efficiently and unpleasantly crowded. But hotel rooms and restaurant tables stay vacant, buses travel half-empty, unsold food is given away to food banks by supermarkets, and unsold TVs from last year’s line end up in Kinshasa. One of the big economic stories of the last decade must be how better information on the Internet and mobile phones has improved the clearing rate of many markets all over the world. But since the markets were assumed to be efficient before, you would never guess the scale of this improvement.