Wednesday 17 August 2011

Offsetting turns agony aunt

A lot of people are very upset that Adidas replica All Black Jerseys are selling for about twice as much in New Zealand as they are in the United States. Some are threatening to not only not buy a shirt but also to cease purchasing any other Adidas products.
Such actions would surely be misguided. We market-oriented economists tend to take preferences as revealed by behaviour as given and work backwards from there, but on this occasion I am going to change tack here and take on the role of an agony aunt to help the Adidas protesters make choices that are consistent with their true utility functions.
First, I am assuming that these people are big supporters of All Black rugby. One thing that is heavily utility reducing for us AB supporters is the exodus of top players overseas, plus the downside of the NZRFU’s policy response to make such players ineligible to play for New Zealand. Now, as I have noted before, I think that policy could be tweaked a bit, but the fact remains that the NZRFU is desperately short of money to retain players. Sponsorship helps reduce the shortfall, but sponsors will want a return on their investment. A consumer boycott of Adidas would lower the return to them from sponsorship and hence reduce their willingness to pay.
So what should a die-hard All Black fan do. The selfish thing to do is to buy the jersey and other Adidas products only if the value to you is greater than the price. If the price is too high according to your own value (not based on some false compare to overseas prices), then don’t buy. If, however, you want to be socially minded, bear in mind that there is a public good aspect to supporting the sponsors of your favourite organisations. Put another way, buying a sponsor's product confers a postiive externality on all those who, like you, enjoy the utility-generating benefits when your organisation gets more income. In that case, the sub-optimal but publicly spirited action is not to reduce your purchases below your selfish optimum, but to go the other direction and consider buying the jersey or other products even if the value to you is not as high as the price!


  1. Couldn't we say that not purchasing the jersey (and making noise about that) is indirectly signalling to the NZRFU that they might want to re-consider the terms of the sponsorship, perhaps changing them so that Adidas can't act in a disreputable manner* and tar the NZRFU by association (as I'm sure Adidas has in its contracts with all its sponsored sports stars).

    *By disreputable manner I'm referring to the churlish behaviour of attempting to block overseas sites from shipping to NZ, not to the cost of the jersey in NZ.

  2. Duncan: What is disreputable about making profit by segmenting markets? Price discrimination is a great way to eliminate some of the inefficiency of monopolies, but it can only occur if between market abritrage is prevented.

    If such activity by firms is to be considered disreputable in New Zealand I am truly worried, as it means we will be paying a lot more for our pharmaceuticals.

  3. I'm with Seamus but with the caveat that there is no particularly good reason govt should help Adidas enforce the price discrimination arrangement; parallel importing rocks.

  4. Companies have been segmenting markets for a long time, but now it is a lot easier for customers to (1) see that it is happening and (2) try to circumvent segmentation. While segmentation can increase the efficiency it can also upset customers.

    Maybe a Adidas could try the approach used by book publishers, which add a low-cost trinket (hard cover) to people that are willing to pay substantially more for a bestseller. In the same way, Adidas could add something to the jersey (in the packaging, throw in a cap, whatever) to make the deal more appealing.

    Disclosure: This opinion is coming from someone who doesn't care about rugby, jerseys, the RWC, etc. My optimum is non-buying.

  5. I've been enjoying/milking the adidas contract on ipredict. For some reason, the contract just doesn't stay down.