Retailers, Black Friday, & a prisoner’s dilemma


We’ve certainly heard a great deal over the past few days about the controversy surrounding the decision by many retailers to open on Thanksgiving evening. Regardless of where you stand on that issue, you should ask yourself: Are these retailers actually generating incremental sales and profits by opening at 8pm on Thanksgiving or at midnight, as opposed to early on the morning of Black Friday? Perhaps they are, but I suspect that they are simply shifting sales which otherwise would have occurred on Black Friday or thereafter. People aren’t buying more items overall this Christmas; they are simply buying them a bit sooner as a result of the Thanksgiving day openings.

Why are firms pursuing these policies if they are unlikely to drive incremental sales and profit? I think it’s because the retailers are caught in a prisoner’s dilemma. If they all chose to wait and open on Black Friday at 6:00am, they would be better off as a whole. However, each retailer is worried that it will lose out if it remains closed while rivals open on Thanksgiving night. Therefore, each retailer opens up earlier and earlier for fear of ceding sales to rivals.

How can firms extricate themselves from this losing proposition? Well, the retailers cannot legally collude to shift openings back to Black Friday morning. However, they can try to achieve some form of tacit collusion, or they can try to influence and signal to one another in a way that leads to cooperative behavior for the greater good. Typically, such cooperation emerges if you have a strong market leader who can influence the behavior of smaller rivals.

Could Wal-Mart serve that function? It seems unlikely, because even though they are enormous, rivals would probably jump at the opportunity to steal sales from them. That’s why we probably will see this trend of early openings continue, though it may not be enlarging retailer profits by much at all.

Previous articleBiz Snaps
Next articleThe launch of the new Wii U