While shopping last night at Hy-Vee, I noticed that a case (24-pack) of Diet Mountain Dew cost more than two 12-packs. One reader noted that the sizes of products have become smaller so that retailers can hold their prices constant. The Economist found that peanut butter jars are now wider so that consumers can get more out of every container. How does economics describe these behaviors?
Is it possible that the Diet Mountain Dew is a Giffen Good? Or, more realistically, does the case take up more space and his harder to handle at the checkout and is priced higher to reflect those costs? I think the answer is that consumers rarely consider the relative costs when shopping.
Another fundamental assumption of economics is that income is constrained. The prices of food are efficiently priced. That means, that in order to get more of one good another has to be given up. I think grocers are sensitive to that trade-off and have responded by changing the size of their containers.
In law, the phrase "caveat emptor" means let the buyer beware. I think the public can be fooled in the short-run, but information travels fast to competitors. As buyers become more elastic in their grocery shopping, markets will fairly value the goods so retailers can not exploit market asymmetries.
I've noticed similar behavior at our supermarket. From time to time, two half-gallons of milk is noticeably cheaper than one gallon.
ReplyDeleteOne possibility is that packaging cost some how makes a difference. The milk, being a relatively perishable good, is likely the same in either size. But if the dairy gets a "good deal" one size container or the other, that cost may be passed on.
A second possibility is that there is a larger supply of one size or the other anticipated, and that product becomes a loss-leader with the intent that sales of complementary goods will increase.
Correction to above:
ReplyDelete"two half-gallons fo milk ARE noticeably cheaper than one gallon."