29 May 2008

Economic Musings from Dubai

There's probably few places quite like Dubai to make you muse about economics. Today I bought a real for sure fake Rolex watch. It's odd to have someone approach you and ask if you want to buy a fake watch; it's an honest kind of graft. I followed him around the corner and into an alley to his shop in the Gold Souk, where he told me the fake watches were upstairs. I followed him upstairs, where he pulled out a key and opened a secret drawer in the wall. So it seems that while they are pretty open about selling fake watches, they want to keep the goods hidden from the authorities.

But what made me ponder was that I was willing to pay more for a fake Rolex than for a fake Tag Heuer (if I'm going to have a fake status symbol, I want only the best). My first thought was that with both buyer and seller agreeing the watch was not real, intellectual property rights weren't really being violated, but then when I realized I was willing to pay more for a fake Rolex, I realized that the brand name did have an important value in the deal. I don't think they were selling fake Timexes, after all.

But having wandered around the 21st century Mall of the Emirates, complete with indoor ski slope and a WalMart like store, Carrefors, which has 53 checkoutlines, I began to wonder about the longterm viability of the old-style souks. I haggled with a guy in the Souk over some silk and wool scarves, and got him down to 700 Dirham (from a start of 1500) before I walked out. Because 700 Dirham is still 195 dollars, which meant about $50 per scarf, and I was standing there thinking WalMart would probably sell them for $10 each. When the price you pay after 1/2 hour of haggling is more than you would pay in the U.S., what's the long range outlook?

Of course I'm a bad bargainer, being from the U.S. where we only bargain over houses and cars. I wonder why the barganing culture is so strong someplaces, and not others. But of course we have bargaining of a sort--a disorganized collective sort of bargaining, where if none of us buy a particular good, they eventually drop the price to a point that tempts some of us.

So who benefits from direct bargaining, buyers or sellers? I think buyers must, most often, for two reasons. First, imperfect knowledge results in imperfect markets, with advantage going to the party with more knowledge. Unless you've been bargaining a lot in the same area, you won't have good information about normal local prices, and of course the sellers do a good job of acting angry, as though you're taking advantage of them and stealing food from their children. Second, they haven't acted to change the system by advertising their prices up front and sticking to those prices, which they could if low enough to undercut their competitors.

But I don't think there's any bargaining in the Mall of the Emirates, so are people here accustomed to comfortably living in a split system, or will standardized pricing eventually drive out bargaining?


James K said...

Bargaining is a kind of price discrimination, it allows sellers to charge people with low price sensitivity or knowledge more than price conscious and/or knowledgeable consumers.

In this case I would expect fixed-price selling to push out bargaining. People who know they want low prices, or who know they are bad bargainers will go to a mall instead. That will squeeze the old markets, slowing driving them out except for perhaps as a boutique niche.

James Hanley said...

Interesting timing on this comment. This morning in the Dubai airport I picked up The Undercover Economist by Tim Harford and was reading his thoughts on price discrimination on the flight to Damascus. Not having had any sleep 2 of the last 4 nights, and only 4 hours one other night, my brain wasn't working well enough to put those two thoughts together yet.

As to fixed price selling pushing out bargaining, I did notice that my hotel and several of the restaurants I ate at had fixed (and announced) prices. One restaurant I ate at did not have fixed prices, but the price they charged was around $3 American, so I didn't really care if the locals were bargaining for less. Another charged me over $7, and as you can guess, I didn't go back. But several, when I looked at their menus, had prices listed. Perhaps it was still possible to bargain, but who knows? Maybe there will be a slow shift to only certain types of items being bargainable, boutique niches, as james k says.

Scott Hanley said...

Funny, but I would probably get more pleasure out of purchasing a fake Rolex watch than being given a real one - make of that what you will.

James K said...

My mother bought a fake Rolex in Singapore, she was very pleased with it and enjoyed showing people here "genuine fake" Rolex.

James Hanley said...

So how to explain why so many of us get such joy from a genuine fake?

Of course part of the fun was the apparent illictness of it, going upstairs, away from prying eyes, the secret drawer. How often do we get to feel we're living in an adventure story?

And then the skeptical side of me says, "What better way to squeeze money from an American, than by making a pretense of doing something illegal." Because I swear the saleman looked around "nervously" once we were upstairs, even though no-one else was there, before opening the drawer. There seemed no point in such behavior, so was it pure showmanship?