Wednesday, February 18, 2009

Did markets perfectly clear?

I had one of the weirdest experiences of my life in the US today. My new basement apartment got too cold for comfort and I called Ali to take me to Walmart so I could buy a small space heater. Should have taken us about 45 minutes. We went to Best Buy, Walmart, Target the local Rite Aid and none of them had a space heater. Finally we went to Home Depot and they had the last 2 models (both without auto shut off and thermostat settings). It was extremely disappointing to not find the usual variety especially in a place like Walmart. Reminded me of my micro class from four years ago where we discussed that if markets were to clear completely then the shelves would be empty. I guess that is what happened in all these places. The market for space heaters probably cleared completely and that is why my demand was not met. 

Ali the constant contrarian argued that there would have been others like me who looked for a space heater and did not find it. That is a possibility as well. The sales guy in Target actually told me that they were getting ready for Spring supplies so they would not have space heaters again until next winter and that they had run out three weeks ago. Its still winter guys!! Some of us are still battling the cold in basements, and yes this morning it was below freezing and we had snow. Who is talking about Spring in mid February? 

Back to the original question. Did the market for space heaters clear perfectly? My guess is it was expensive to hold inventory for the stray purchasers like me. But really does the market for space heaters die out in the last week of January in this region? I find that strange to believe. I agree we have had a few warm spells but that does not make the cold go away completely until at least end March. What is happening to the market for space heaters?


Richard said...

Maybe excessive safety regulations have made it unprofitable for companies to stay in the business of making electric space heaters? Or maybe the amount of store space in your densely populated region is limited by all the busybody regulation of retail outlets, so that the amount of revenue which a retailer must make, per square foot per year, is driven above what most retailers could expect to make on out-of-season heaters. There is usually a way to blame government for almost any frustration. As a radical libertarian I make it a point to emphasize these ways.

But, in case it may help, I use old fashioned electric light bulbs to supplement the heat in my office. Fifteen 100 watt light bulbs would give off as much heat a 1500 watt electric space heater (1500 watts is about the biggest you could find in the 110 volt category). Also, with heat being delivered in these small dribbles of hundreds of watts, it takes hours to warm a room up (assuming the room is tight and draft-free enough to be warmed up at all by these dribbles). So I plan ahead, turning on my electric heater and light bulbs at least three hours before I expect to sit comfortably in the room.

bobvis said...

The issue is demand is stochastic. At some point, the space heater companies (and their vendors like Target) have to predict how many space heaters they will sell. For example, a given store might estimate 1000 heaters. If unsold $50 heaters have to be discounted to $25 at the end of the season if they do not sell, and the heaters cost $40 each, then the store will quite likely buy fewer than 1000 heaters to ensure that it doesn't take the hit from needing to discount. So, the store may rationally decide to stock fewer heaters than they expect to sell.