This Christmas, thank Amazon (and its friends) for connecting you with your goods
From childhood, I’ve long had a passion for hockey.
Specifically, that passion has been directed towards one team — the Boston Bruins.
As a youngster growing up in Indiana, that was difficult. First of all, the National Hockey League doesn’t have a huge profile here. Second of all, following a team so far away meant reading a one-paragraph roundup in the next day’s newspaper, maybe catching a faraway radio broadcast and enjoying the few nationally-televised games they played.
And while my friends at school could display their fandom for their favorite sports teams — as long as they were the Colts, Pacers, a local college or one of the baseball teams in a neighboring state — finding Boston Bruins merchandise in Central Indiana was next to impossible.
It made sense. There isn’t a huge market for NHL memorabilia in Indianapolis to begin with, much less a team based 950 miles away.
So on a family vacation to New England in college, armed with my meager savings from my part-time job, I insisted on stopping by a store in Portland, Maine just to shop for Bruins-related stuff. A quarter-century later, I still own the sweatshirt I bought that day.
On the margin, it was a small cost to me — I was already there for a different reason and my parents were footing the bill for the trip. But in the big picture, the cost of purchasing a Boston Bruins sweatshirt was large — a 2,000-mile round trip, searching out a store while on vacation and the time spent looking for that specific item of clothing. It was very valuable to me because of the time and effort it took to find and purchase it.
That’s a transaction cost — the cost of searching for and finding the specific good I wanted. Not only did I need to search, the sellers did so, too. There was no way for any specific seller to know there was a college student in Indiana who wanted a sweatshirt with an eight-spoked B emblazoned on the front, and the cost of finding that college student and shipping the gear would have been much larger than the cost of putting it on a rack at a store in New England, even though I would likely have paid more for that shirt than a typical local customer.
Fast-forward to today. I type this in a room full of Bruins’ memorabilia — pucks, photos, posters, figurines, a closet full of sweatshirts and jerseys.
What changed? The amount of stuff available didn’t. But costs of buying and selling did — which changed the amount of stuff easily available to me.
Shortly after our vacation to New England, a large online bookstore out of Seattle showed up on the emerging World Wide Web. That site later began to branch out to other things, and bring about imitators. Some made it, some didn’t, but what it did was reduce the transaction costs.
Now, a seller didn’t have to simply put clothes on a rack and hope someone would buy them. They could put them online and find buyers all over the world — like me — who would be willing to purchase them. And instead of having to drive a thousand miles to find a store where I could buy a sweatshirt or a jersey, I could have it delivered to my door with two or three clicks of a button, often with free shipping and at a similar price to what I’d find in the store.
That’s what markets do — they bring willing buyers and sellers together. A good entrepreneur seeks out those opportunities and finds willing buyers. As pointed out by Israel Kirzner in “Competition and Entreprenuership,” the seller does not necessarily need to be the manufacturer or the owner of the initial resources. “He merely has to know where to buy resources at a price that will make it worthwhile to produce and sell at its attainable price.”
In recent years, e-retailers like Amazon have come under fire for all sorts of perceived sins — whether it’s being a multi-billion dollar company, for providing stiff — and in some cases, impossible to overcome — competition for brick-and-mortar retailers, or for profiting off others’ production.
Kirzner notes transaction costs are the costs “of obtaining the information necessary to enter into and complete bargaining negotiations.” They are essentially the costs of information, which both the buyer and the seller need to know the other exists so an exchange can take place.
A retailer provides that.
The reason Amazon is a multi-billion dollar company is the same reason any other retailer becomes successful — it provides consumers what they want at a price they’re willing to pay. Amazon — and its many competitors — reduce transaction costs. No longer do I need to drive to New England to find a Boston Bruins sweatshirt.
No longer do I need to go to 10 different stores and battle crowds and long lines hoping to find the right Christmas gift for my wife, hoping they have what I want in stock. All of those come with a cost — a cost in time, research and effort on my part, and to the retailer, in advertising to let me know they have what I want to buy. Providing that service is invaluable — just as the Sears catalog was for those in rural areas in the days when travel was difficult and the nearest large store might be hundreds of miles away. Or even as invaluable as the now-dying suburban shopping mall was for those of us in the 1970s and 1980s, as bringing many different sellers together under one roof made it easier to find buyers and for buyers to find what they needed.
They all serve the same function — to bring buyers and sellers together in a way that benefits each party. When I buy from Amazon — or from a local mom-and-pop store — everyone benefits. I benefit from having access to the good being sold. The manufacturer benefits from having a retailer find me as a buyer. And the seller benefits from bringing us together. Each profits from the transaction, and that spurs each party to continue producing, selling and buying more.
That coordination is part of the “invisible hand” that Adam Smith spoke of in “The Wealth of Nations,” in which the market process not only benefits each individual party, but society as a whole, even though benefiting society was not the intention of anyone.
So the next time you buy something, be thankful for Amazon, for Walmart, for Fanatics or for any other retailer for making such a wide variety of goods so easily — and often cheaply — available. They may not have manufactured the goods we buy, but they play an important role in helping improve our lives.
Andrew Smith is an economics instructor at New Palestine (IN) High School and Vincennes University