Haggling and Hiring: Economic Lessons from the Real World
INTRODUCTION This blog was prompted by an article in the Sunday New York Times Business Section of April 14 titled, “Sometimes We Want Prices to Fool Us.” The article is about the J. C. Penny’s merchandising disaster. HAGGLING In 2012, J. C. Penney’s sales dropped 25% compared to 2011. Over two years ago, Penny’s brought in Ron Johnson from Apple Stores to turn the company around. Mr. Johnson eliminated sales and coupons and promised shoppers “everyday low prices,” Walmart’s slogan. This saved huge amount of money on inventory and advertising costs and smoothed out cash flow. Great strategy. Penny is near bankruptcy. Ron Johnson has been fired and sales supplements are reappearing in my newspaper. Simple economic theory assumes one equilibrium price. Each potential consumer compares his/her expected “pleasure” from buying the product to the cost (price) of the product, and then decides whether or not to buy it. This says nothing about the psy