Berkeley vs. Competition

One of the pleasures of living in the East Bay is the off-leash dog park at Point Isabel, where we will go with ours later today. On the way home, the devil has placed a temptation. If there’s a parking place in the shade, we can stop at Costco and load up on staples at very good prices. And not just staples: I discovered a new rather obscure and super-yummy Boschetto cheese there on a recent trip, and Costco’s wine selection goes from $6 plonk almost to triple digits. Not to mention my cool new Xoom.

Doing this of course hurts the merchants in our walkable Elmwood neighborhood. One of them, a new wine and cheese store, has a similar cheese that came with an informative lecture about it and its relatives, not to mention offers to taste things I wouldn’t know to ask about, and personal interaction with the manager. I don’t remember the prices but it’s hard to imagine Costco doesn’t beat the locals on everything they offer, so if my limits of analysis are tightly drawn around the cheese and my wallet, I’m better off at Costco: same eating experience and more money left to buy other stuff with. If I add in my shopping time at some imputed money cost, Costco still wins, because I can allocate an hour of wheeling a cart around, and waiting in line reading a book on my phone, across maybe a hundred pounds of stuff. To shop at Wine Thieves, I take a dog and also stop at Peet’s and the bakery next door, and because I leave the dog tied to a parking meter and he is the world’s most sociable canine (if dogs sold insurance, he would be a millionaire), I have to chat with people petting him. A half hour for a pound of coffee, maybe a latte I could make cheaper at home, a loaf of bread, a piece of cheese, and maybe a bottle of wine: if I’m not withdrawn into earphone intimacy with mp3s or the radio, it’s not an efficient use of my time by conventional accounting.

On the other hand, I could analyze this choice by drawing the limits of analysis for the cheese (for example) to include the hedonic experience of shopping itself; the good “cheese” when bought locally incorporates a share of an enjoyable experience that, unlike a concert, has no price, but a lot of value, indeed a different sign from the experience of schlepping around Costco. From that perspective, things bought locally are worth more than the same things bought at Costco (Tibor Scitovsky has lots more on this point of view in The Joyless Economy, still a classic.)

Let’s say, enough more to be worth the price if paying the premium will keep the pedestrian, local, interactive shopping experience available to me and my neighbors. Unfortunately, as Bob Frank explained at a conference more than a decade ago, I’m facing a prisoners’ dilemma. I want the humane, interactive shopping experience in my neighborhood and elsewhere in Berkeley, and I’m willing to pay more for it sometimes, and for some things. I’m willing to pay even more to assure that I can have it when I want to. But my personal shopping is a blip at Wine Thieves or Peet’s or the bakery; the continued availability of that experience depends on what my neighbors do, and I’m better off saving money at Costco and only shopping locally when I want to walk the dog if I think they will step up and pay what it costs to maintain Elmwood commerce, and also if I think they will not. Indeed, the best deal I can get is to just walk around the neighborhood windowshopping and chatting with people over the dog, and go to Costco for actual buying stuff.

There’s more: to buy cheese at Costco requires only that I reach into the cooler when I am already walking by. To buy it at Wine Thieves I have to make a special trip of a couple of blocks; even if I’m already on the sidewalk I have to walk into the store. It’s like driving: when you own a car, and it’s right there in the driveway, you’re a lot more likely to drive instead of walk ‘just this once’ than if you have to arrange a vehicle from Zipcar. Even though you would rather walk more and drive less.

Away across town, in North Berkeley, this conflict is playing out explicitly (ht: Steve Teles, on a listserv). The Monterey Market, a beloved local institution, is accused of starting to sell the same things as the small shops that cluster around it in a nice local shopping center, but for less. What’s not to like? Tyler Cowen posts the story wondering if it’s supposed to be parody. If a piece of nice cheese is just a piece of nice cheese, this is competition doing what it’s supposed to do, and as long as it lasts, the Northbrae neighbors get their nice pedestrian center and cheaper cheese, which is obviously better than the nice center with expensive cheese.

Of course, the question is how long it lasts. And to understand what’s going on here, I think we have to think of the whole shopping center as an ecology of enterprises providing something much more valuable than the merchandise in its stores collectively, but whose value is an integral, not an intensive, property of the ensemble, and also value that there’s no way for any individual shopper to signal by market messages. An analogous example is a hardware or computer gadget store with stuff to browse around in that you didn’t know existed, and a deep inventory including stuff you only want very rarely in addition to the fast movers. No one of those slow-moving items can justify itself on the shelf alone, and an accountant will be quick to get rid of them. But as a group, as the good “this store will have the odd item you need to fix your sink on Saturday”, they provide so much value that CompUSA curled up its toes because the accountant and his inventory software killed it. Not to mention a clerk you could actually find to talk to in person, and who knew anything beyond when his break was due to start.

Monterey Market, assuming it’s not just using predatory pricing specifically to kill its neighbors, is doing what a merchant should do, by the conventional market model, and if that model is really bankrupt we are in terrible trouble. But Monterey Market is a car destination merchant, draws from most of north Berkeley, and can probably survive as a vegetable and deli Costco, with customers who don’t go beyond the parking lot and a few who walk in. (Not necessarily; it’s quite possible that MM will kill itself if this torpedo turns around and the surrounding stores actually bring it important trade now.) Will a Northbrae with no or few local, quirky, diverse merchants who provide each others’ foot traffic, and one big Monterey Market, provide more value to society through its lower money prices than the existing and rather delicate Northbrae neighborhood ecology? My strong guess is, no, any more than a planet four degrees hotter with cheap gasoline provides more value than a cool planet with gas at European prices. YMMV.

This is where I should obviously preach that we should all go out with or without the dog and shop locally, just as I wish to preach that California should implement global warming programs even though their benefits are immediately diluted 1:200, which is a very high hurdle for a benefit-cost argument. Not everything has to be accomplished by money or even private utility maximization, especially short-run utility; a lot of good in the world just depends on people acting like grownups and doing the right thing. But a prisoners’ dilemma is a real mismatch of private action incentives and private payoffs from collective behavior. Someone who pays extra for everything locally while his local neighborhood shops go broke anyway is a chump or a luftmensch, right?

My wife is land use planning manager for the City of Berkeley, which has some planning regulations that would make Tyler sign up in the local anarchist chapter (I believe we still have a parking lot that’s unbuildable as a landmark because at one time there was a garden there). It’s a meddlesome system with things like quotas for different kinds of retail that fight legitimate market signals about highest and best use. But it’s also the result of an implicit, not always correctly-analyzed, recognition that not everything of value has a market in which to coordinate supply and demand, nor money prices to demonstrate that value. An ecology of retail will not maintain itself for maximum social value creation without some government steering. The conflict brewing in Northbrae is not another excuse to ridicule Berzerkeley; it’s a collision of legitimate values in a world in which the market is not chopped liver, but also not a sufficient machine to best guide the behavior of ordinary flawed people, of the type Berkeley (and everywhere else) is populated with.

[Cross-posted at Same Facts]

Michael O’Hare

Michael O'Hare is a Professor of Public Policy at the University of California, Berkeley.