Wednesday, 18 May 2011

Rejecting cake socialism - the operation of the free market in office morning tea

"Come have some scrumptious coconut cake near my desk ... Reviews from my team so far: "this is yummy" and "much nicer than it sounded, I think I'll have another bit"
Not the actual coconut cake

So announced the offer of a mid morning treat to all our team today. And an interesting example of social economics followed.

Apparently, the Marketing (email) was effective, the product (cake) good quality and the price (free) was attractive. Naturally, the laws of economics meant that demand was high, encouraging significant trial and repeat purchase. Soon the supply had been exhausted.

I wandered over for a piece of cake many minutes later to be told I was much too late. My suggestion that there should be rationing and "cake socialism" was rightly rejected. The free market had triumphed.

Let's dissect this cake giveaway market.

Supply: limited

  • With the limited supply of product, the seller could extract a high price. Alternatively, they could control distribution, to ensure preferred purchasers were guaranteed product.

Pricing: Low

  • Instead of setting price high, it was set low. Was this an error in assessment of the market need for cake? Or perhaps it was a deliberate tactic to generate "buzz"

Consumption controls: Low

  • With such a great offer, why weren't any purchase quantity controls imposed? In fact, there were controls - only one piece could be taken at a time - this limited bulk purchase for resale, but there were no limits on returning for more.

In a controlled market, cake socialism might have ruled.  One piece might have been allocated per person.  Or even a ballot for who gets a piece. People who didn't even want a piece would probably be given one (and there is every chance that would create a black market for coconut cake with non coconut cake eaters onselling their portion to those who missed out)

Instead, by letting the market operate, competition for the limited supply ran wild.  Sure, I didn't get a piece.  But that's my own problem. Next time, I'll be faster.

So, how will the market operate next time?  The success of the coconut cake launch has generated positive brand trust for the cake provider.  She can increase her price (perhaps favors from colleagues), or maybe extend the product line into a more profitable offer.  Maybe she will increase supply to satisfy more colleagues.

In any case, the free market will find its level.  It's not perfect, but it's better than cake socialism

Let me know what you think (tick a reaction box)

Mark S

Postscript, with thanks to @almulcahy
Eddie Izzard- Cake or Death

No comments:

Post a Comment