'All that glitters is not gold; Often have you heard that told: Many a man his life has sold But my outside to behold: Gilded tombs do worms enfold'
What is value? It's clearly not from the usefulness of an item, otherwise water would be much more expensive than diamonds. Karl Marx claimed that value stemmed from the 'only thing common' to all commodities-the labor that goes into producing them. Adam Smith claimed that value stemmed from whatever people demanded of that commodity (scarcity). The latter theory is currently winning in most economist's minds as the more likely source of value. Yet, here in Moscow, there are price discrepancies that seem to defy either of those claims.
Imagine walking into a grocery store, and the prices are all changed from what you're used to. Imagine an apple costing $5 and a steak costing $0.10. Has the value of those two objects changed? And at what point do you start salivating at the thought of a medium-ripe apple, while choking down your steak a day, simply to keep doctors away? Often we are so quick to assume that price reflects value, but such is definitely not the case in Russia.
The above example is not merely a thought experiment, it's the dumb(founding) logic that runs things here. In fact, it's even stranger than sudden changes in price. Two stores located in relatively the same area of town charge vastly different prices for the exact same goods. Example 1: Raspberries at store 1 - 700 rubles. Raspberries at store 2 - 70 rubles. From whence did this apparent change in value arise? Did someone spend several more hours of labor on the first raspberries? Are people who live closer to store 1 that desperate to not walk another 100 m for fruit?
Not only does price theory not make sense between stores, but intra-store prices are equally confusing. Example 2: 500 g of laundry detergent - 100 rubles. 1000 g of laundry detergent - 400 rubles. So you can buy two small boxes for half the price...what happened to diminishing marginal returns?
So where is the common sense? Have Russians just not caught on to basic price theory? Judging by their prowess in maths, I doubt that's the case (I might accept poor management as an answer, but let's skip that for now). I was discussing this with a friend of mine, and we came to the conclusion that it has to be a signaling thing. I shop at store 1 not because it's better, but because I can. This is one of the many ways 'high class' Muscovites show that they are wealthy. So it comes down to a signalling game - something we are well acquainted with in the US, just not so much in our produce section. What kind of items do you find yourself buying simply to signal to others what type of consumer you are?
What is value? It's clearly not from the usefulness of an item, otherwise water would be much more expensive than diamonds. Karl Marx claimed that value stemmed from the 'only thing common' to all commodities-the labor that goes into producing them. Adam Smith claimed that value stemmed from whatever people demanded of that commodity (scarcity). The latter theory is currently winning in most economist's minds as the more likely source of value. Yet, here in Moscow, there are price discrepancies that seem to defy either of those claims.
Imagine walking into a grocery store, and the prices are all changed from what you're used to. Imagine an apple costing $5 and a steak costing $0.10. Has the value of those two objects changed? And at what point do you start salivating at the thought of a medium-ripe apple, while choking down your steak a day, simply to keep doctors away? Often we are so quick to assume that price reflects value, but such is definitely not the case in Russia.
The above example is not merely a thought experiment, it's the dumb(founding) logic that runs things here. In fact, it's even stranger than sudden changes in price. Two stores located in relatively the same area of town charge vastly different prices for the exact same goods. Example 1: Raspberries at store 1 - 700 rubles. Raspberries at store 2 - 70 rubles. From whence did this apparent change in value arise? Did someone spend several more hours of labor on the first raspberries? Are people who live closer to store 1 that desperate to not walk another 100 m for fruit?
Not only does price theory not make sense between stores, but intra-store prices are equally confusing. Example 2: 500 g of laundry detergent - 100 rubles. 1000 g of laundry detergent - 400 rubles. So you can buy two small boxes for half the price...what happened to diminishing marginal returns?
So where is the common sense? Have Russians just not caught on to basic price theory? Judging by their prowess in maths, I doubt that's the case (I might accept poor management as an answer, but let's skip that for now). I was discussing this with a friend of mine, and we came to the conclusion that it has to be a signaling thing. I shop at store 1 not because it's better, but because I can. This is one of the many ways 'high class' Muscovites show that they are wealthy. So it comes down to a signalling game - something we are well acquainted with in the US, just not so much in our produce section. What kind of items do you find yourself buying simply to signal to others what type of consumer you are?
As you can imagine, that's a HUGE motivating factor for shoppers here in Silicon Valley. I just got home from walking around the most lavish mall I've ever seen (two miles from my house), where there are more high-end stores per shopper than probably 5th avenue in Manhattan. The only reason for shopping there is to show everyone around you that you are worth it. Whether you really are or not.
ReplyDeleteAlso, when Paul and I were in Albania we were frustrated by the economy there. It seemed like all a store needed was advertisement. If one person could somehow say "I'm better than the other 50 small markets on this block," then they could pull ahead and make those random prices make sense. In Albania we figured the prices varied so much because either the same people will shop there no matter what (they're family or it's convenient), or maybe they'll get lucky because some stupid American will walk in and pay their exorbitant prices. And we did. often.
I've thought about this since reading your post this morning. Even though I buy many of our things at yard sales or thrift stores, I want it to look like I bought them at an expensive place.
ReplyDeleteYou just gave us an example of how not having enough information makes something seem very random. Two stores have strangely varying prices. Then you told us that one store is for snobs, and the high prices made complete sense. I work for a developmental test organization and we try to develop mathematical models to fit real world phenomena. Sometimes, we seem to get random results when we're missing an important factor. Then, when you insert that factor into the model, BAM! Out pops a correlation like magic. You've spent most of your life living in the U.S., building a model in your brain of how the world should be. When you see something that doesn't fit your model, it seems completely random. But maybe a Russian, having a different model, would see those things as completely normal. By the way, where do they eat steaks instead of apples? I'm moving there.
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