21 Dec 2008

The Economics of Shopping Bags

In this shopping season, it seems a good time to discuss the little-understood, but commonly-questioned, economics of shopping bags.

In particular, why is it that some places give you bags for free, others charge you for them, and still others give you a money credit when you bring your own?

Let's consider each of these in turn before adding a little more at the end (festive writing style today)...

Free Bags: Why would a merchant give you a bag? Because the merchant wants to sell you stuff that goes in the bags! Why is that rational? Because you will buy MORE when you have free bags to carry stuff in! You must agree that you are likely to buy less when you have to carry stuff on a bike or in hand, or when you go shopping frequently.

Now these last two observations lead us down an interesting path. What if you live far from the store and only shop occasionally? Well, it makes sense to buy a LOT at once to take to your distant home. What's good for that? A car -- and a big one please!

Can you see how free bags may be a leading symbol of our sprawling bedroom "communities" and the big cars we use to travel from them? Yes? Well that means you will also understand the pros and cons of...

Bags You Pay For: Back in the day, everyone brought their own bags shopping, but the convenience and consumption movement put paid to that with free bags. These days, bags have prices to discourage people from using more of them -- either because bags end up as litter or consumption is frowned upon.

Bag Credits: Now let's take the paid-bag perspective to heart and assume that there's public pressure to raise the price of bags. Contrast that with merchants' desire to sell more, and we end up with the "bag credit" compromise, i.e., a way of allowing the greenies to feel good about themselves (for just $0.05/bag!) while leaving "uninhibited shoppers" to continue without bother or interruption... to generate revenue for merchants!.

Now we can understand why stores (even "green" ones like my co-op) hesitate to invoke bag charges. They don't want to reduce sales or drive customers to the competition.

That's why city-wide bag bans are so useful -- they require that all merchants coordinate their activity (normally a violation of anti-trust laws) to charge for bags. LA announced such a ban this summer, but we won't know how it works (or if its implemented) until 2010.

Bottom Line: Economics is all around you! in the bag! <--- new hit song!