Like any good economics researcher, I spent my Thanksgiving holiday spending time with family and friends, relaxing, and, of course, thinking about Black Friday. What may surprise you, however, is that instead of getting a head start on my holiday shopping or partaking in a cultural phenomenon, I was instead thinking about how Black Friday is a great example of the concept of game theory.
In economics, game theory applies to situations where one person’s decision is influenced by another person’s actions. As such, me deciding whether to read a book or watch TV by myself is not an example of game theory since other people have no impact on the situation, while me deciding to watch a Disney movie instead of a documentary because I’m with a four-year-old is an example of game theory because the four-year-old’s presence affects my choice. Of course, this example is simplistic, but game theory is especially relevant in light of recent consumer events: namely Black Friday, from the perspective of both stores and shoppers.
While we might not think of stores as typical decision makers, game theory does provide an interesting take regarding their actions on (or around) Black Friday. Consider store opening times—would stores open early if they didn’t believe that shoppers would arrive at those times, or if they didn’t take into account that other stores are also opening early? Since they are taking into consideration the actions of others, this is an application of game theory. For example, 2016 was the first year that Macy’s opened on Thanksgiving Day. While some decried this decision, other stores followed suit and also opened on Thanksgiving because of Macy’s actions.
Game theory can also help explain shoppers’ behavior on Black Friday. Consider their decision to wake up early and take advantage of a limited number of highly advertised sales—while I cannot speak to the motivations of others, I doubt that very few people would choose to go shopping at 5 AM on their own accord. That is, they make their decisions taking into account the actions of other shoppers (whom also take advantage of deeply discounted Black Friday sales) and stores, based on the expectations that there are only a few deeply discounted items in store, and Black Friday deals are short-lived.
Black Friday kicks off the holiday shopping season and is a boon for the retail sector. In addition to (or in spite of) its status as a cultural institution, however, it also provides an interesting and real-world application of game theory, much to the delight of economics enthusiasts.