Thursday, July 29, 2010

An Absence Of Markets: IKEA Edition

It sometimes fun to apply economic principles to everyday matters, and the way people interact with each other. And sometimes, it’s a little depressing. This post outlines a case of the latter.

I was at the IKEA store at IKANO Power Centre in Kota Damansara last Saturday, having dinner with my family and my sister. It being the start of the IKEA sale, the place was of course packed to the gills. The in-store restaurant was no exception, with fairly long queues into the cafeteria area.

Here’s the curious thing I noticed however. Even though the place was full, about a quarter of the seats didn’t have diners. Instead there was very obviously someone sitting at each empty table, “booking” the table for their party. From an economic perspective, that’s a rational response – in the absence of a rationing mechanism, a function usually taken by prices in a free market system, each family pursued their own narrow self-interest and appropriated scarce resources (seats and tables), when able to do so.

That this inconveniences other diners who didn’t have the foresight to “book” in advance is just an unfortunate side-effect of the “competition”. Given the circumstances, this is a system that kinda works – resources are allocated based on those willing to “work” for them, since there is no market coordination mechanism such as price to do the allocation.

But this isn’t an optimum equilibrium when a better more socially desirable one is achievable (i.e. more Pareto efficient), because of another observation I made. It took most prospective diners 25-30 minutes to get through the queue, order and collect their food, pay at the counter and get their drinks, and get to their seats. I don’t know about you, but even with my family, the lot of us would be able to finish our dinner and leave well within that time span.

In other words, if people had just lined up and looked for tables and seats later, and if they hadn’t been competing beforehand for the certainty of having seats for dinner, there would have been sufficient seats for the flow of diners looking for them – a higher social welfare equilibrium, since no one is inconvenienced and seats and tables are allocated as needed. The act of “booking” the seats and tables beforehand created an artificial drop in supply, and in pursuing their narrow self-interest, individual family units caused a drop in overall social welfare.

I suppose you could “fix” the situation by introducing a rationing mechanism (queue tickets? forced flow layout? advance booking fees?), but equally you could probably achieve the same thing by raising civic consciousness and fostering an attitude of greater consideration for others.

We’re unfortunately, still a long way from being a civic society.


  1. Brilliant observations and deductions!

    But you miss one - that the great walla lives across the road, a mere ten minutes walk from the meatballs and refillable coffee you had.


  2. BU or KD? But nice to know anyway.

    And thanks for the links.

  3. The same thing happens in university libraries around exam time. I've been to a couple of universities and it is the same. Those pesky undergrads. I blame the damn undergrads.

    Interestingly enough, some places are priced to advert the problem but enforcement is lacking. While those who paid for access do get past the locked door, some let unpaid users in regardless.

    And then there's disgusting immature student politics which is leftist in general. Demand pricing and they accuse you of being a neo-liberal.


  4. for etheorist, de minimis and hishamh: