Saturday, October 6, 2007

Market Failure: Supposedly not enough diversity

This brings us back to Nike's new shoe. Foot Locker is full of options that fit me and most other Americans. But American Indians make up just 1.5 percent of the U.S. population, and with feet on average three sizes wider, they need different-sized shoes. If we had all voted in a national election on whether the Ministry of Shoes should make wide or typical-width shoes, we surely would have chosen the latter. That's why Friedman condemned government allocation. And yet the market made the same choice. If Nike's announcement looks like a solution to this problem of ignored minority preference, it really isn't. The company took too many years to bring the shoe on line, and according to the Associated Press, the new sneaker "represents less of a financial opportunity than a goodwill and branding effort." . . . .


1) "That's why Friedman condemned government allocation. And yet the market made the same choice." If the size of the particular group is so small or if those in the group aren't willing to pay that much for the shoes, you might not get a product specifically designed for each small group, but it is a long way to implying that the market doesn't produce a lot more diversity of products than the government.

2) "The company took too many years to bring the shoe on line . . . ." There is a cost and benefit from producing this diversity of products. I would guess that the benefits now exceed the costs. Possibly the cost of making products for such small niches has gone down. The article mentions that these wider feet might be do to "diabetes and related conditions" and possibly more people generally are suffering from this problem. (It isn't clear from the piece what percentage of the 1.5 percent of the population who are Indians have these wide feet, but presumably it is less than 1.5 percent.) Bottom line: what evidence is provided here that it took "too many years" to provide these shoes. That is, "too many years" in the sense that the costs of doing this were less than the benefits (total costs including the costs of figuring out that such a market existed) and yet it was not provided.

3) Just because Nike wasn't producing these shoes, I would have liked some evidence that shoes weren't already being produced for this segment of the market. I looked up some shoes on the internet and it seemed that this market niche was well covered see here, here, and here. You get sizes from EEEEEE to XW, and I haven't even heard of some of these sizes since they are so wide. I see no evidence that the basic claim in this article is correct.

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