MICROECONOMICS-ORIENTED ARTICLE REVIEW: "THE COST OF HOLIDAY PRICE WARS"
The Wall Street Journal reported on Monday 28 November 2005 that retailers in the United States were "slashing prices and offering low-cost financing on goods ranging from jewelry to laptops" (Patterson, 2005, p. 1). This behavior on the part of retail firms is occurring at the peak period of the holiday shopping season, as opposed to late in the season or the week after Christmas.
There is a microeconomic explanation for the behavior of retailers that is couched in the familiar supply and demand framework. There is a twist to the straight supply and demand relationship in the fall of 2005, however, because the chief culprit is neither consumer desires in relation to the retail products nor the prices of retail products per se. Rather, the chief culprit is the high cost of energy, especially so fuel costs for automobiles and energy costs for home heating.
Although fuel costs for automobiles appear to be moderating from the peak levels reached in October, they remain substantially higher than they were at this time last year. With respect to energy costs for home heating, the actual bills to consumers have yet to materialize, but consumer anticipations about those costs over the December-February period are a major consumer concern.
One result of the worries among consumers about energy costs is a lowering of demand for retail consumer goods. The lower demand does not mean that consumer desires for such goods has deteriorated. Rather, the lower demand is a reflection of consumers decisions related to purchasing priorities in the face of high energy costs. At so-called "normal" price levels for retail consumer goods, increasing numbers of consumers are placing spending priorities on the purchase of gasoline to get to and from work, as well as saving funds for the anticipated higher costs of home heating over the coming December-February period.
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