Quantity Rationing As Business Strategy: Furthering The Case For A General Theory Of Pricing

Fixing the Economist Article of the Week

by Philip Pilkington

My last post on my attempts to create a general theory of prices met with some positive responses. I’m not hugely surprised. Any thinking person who has ever entered an undergraduate micro course has questioned the validity of what’s being taught. Although neat, it does seem to fly in the face of the economic realities encountered in the real-world.

Follow up:

One of the purposes of laying out a general theory of prices is to allow for a framework that can accommodate the massive variety of decisions undertaken by everyone from investors to firms to set prices in capitalist economies. The aim is to get rid of the notion that there is some sort of pre-determination to these decisions and that they can be modeled in some a priori manner.

Again, the idea is that in order to understand pricing in capitalist economies it is the responsibility of the economist to actually inquire into the reality of the price-setting process rather than just making up deductive arguments that are then projected onto the outside world. A general theory of pricing would provide a simplistic and highly flexible framework that can be used to discuss such empirical issues.

Here I would like to lay out a particularly unusual instance of price/quantity setting by a firm. The importance of the following example is not that it is general but rather that it is so particular. It is the unusualness of the following example that gives it the force of the exception that disproves any a priori rule.

Back in 2013 the Abercrombie and Fitch CEO Mike Jeffries caused controversy when he said that he didn’t want overweight or unattractive people shopping for his brand. Jeffries also put his money where his mouth was in that the Abercrombie and Fitch shops were not stocking sizes that would accommodate overweight people.

Jeffries comments and Abercrombie and Fitch’s (ANF) policies set off a firestorm of disgust at the elitist posturing of the company. Many even got a good laugh out of the fact that Jeffries… well, let’s just say he wouldn’t be featuring on any Abercrombie and Fitch billboards any time soon.