What If?

What would be the economic effects if everyone could buy a non-discriminatory membership card in Sam's Club, or Costco, etc., at the beginning of every month, that allowed all of your gasoline and groceries and paper goods for that month to be free?

Addendum : Gasoline, groceries and paper goods are not available by any other path, and must be purchased with a membership card.

Share this

This is a prediction based

This is a prediction based on observation of the health insurance market and public education system. Someone else can fill in the theoretical background that relates it to Don's hypothetical market.

The awkward business model will struggle to keep up with customers trying to optimize the system for themselves. There will be a profusion of new rules to explain why customers cannot do what makes sense to them. The cost of administering these rules will rise exponentially.

A couple of notes: Only

A couple of notes:

Only members are allowed to buy, and their purchases are free, so there are no price labels on the shelves. Thus members have no easy way to compare their membership fee to what they receive.

At the beginning of the month, the retailers have their membership fees in hand. The only way that they can assure a profit is to only place goods on the shelf whose total costs sum to less than the total of the membership fees.

Regards, Don

I think the point is demand

I think the point is demand and price would go through the roof as there would be no marginal costs to the consumers. (And I'm pretty sure that insurance is the intended analogy.)

You mean like the U.S.

You mean like the U.S. Health Care system, where one can pay his premium (or that part that is not subsidized by his employer), meet any deductible, then consume as much health care as he wants for nothing (or for a modest co-payment)? How's that working out? :razz:

Haha.

Haha.

, who’s really going to

, who’s really going to want “all you can buy” junky off-brand toilet paper that gives your ass the sandpaper treatment??

I like to call that stuff "John Wayne" tiolet paper. Rough, tough and doesn't take any shit.

I agree with TJIC. In the

I agree with TJIC. In the long run, not much would change as long as prices are allowed to move. Stores would not let shelves become empty, and they cannot simply create products out of thin air; they would adjust the prices of the card and the individual items so that they could profit.

To continue on TJIC's

To continue on TJIC's explanation, no, something like this would not last long, as the middle and lower quantity purchasers would obviously have to subsidize the higher-quantity purchasers. The cost of this membership card would have to be so high as to account for these hoarders, as TJIC said, at which point the only ones who would pay for such a service are the ones that can either afford to hoard (those with several freezers, extra gasoline storage tanks, conditioned warehouses for storing food and sundries) or those who attempt to re-sell the items for a profit.

Unlike most all-you-can-eat buffets, the items here (groceries, paper goods, gas) are not marginally priced so as to engender a profit in most situations. The bulk grade-D pork chops that sit on the warming trays at Country Cookin' all day, don't have an equal in the gasoline market. Sure, the places could offer bargain-basement groceries and paper goods, but then, who's really going to want "all you can buy" junky off-brand toilet paper that gives your ass the sandpaper treatment??

Just like with all-you-can-eat restaurants, these places aren't exactly going to get reviewed in the "Zagat's" of the grocery world.

More likely scenario is one in which the stores can control the amount of expenditures, such as putting a cap on monthly purchases in each category. Or, along those same lines, having different levels of membership in which the more you pay, the higher your cap is.

What would be the price? A

What would be the price?

A naive vendor would sell these cards for around the price that folks normally spend every month on these items.

This would immediately be exploited (and I mean that in the nicest possible way) by folks who would buy a pass, and then take home a year's worth of supplies.

The price would then rise to cover the year's worth of supplies, because no corporation likes running a major loss.

Given that, at fair market value, folks would rather space out their purchases over the course of an entire year rather then buy extra freezers, stuff their attic with Ramen noodles, etc., almost noone would buy the monthly passes.

The result would be almost identical to how things are today.

People would open secondary

People would open secondary markets and obtain unlimited quantities from the vendor. The secondary customers would have to pay more and more as the monthly fee went up. The club members would keep getting bigger and taking on more customers in order to be able to afford the mounting fees. All but one would go bankrupt. Finally there would one gigantic club member who would buy all the products. He would distribute the products according to how much each secondary customer paid him. The system would revert to the way it is now. The primary buyers would act exactly the way middlemen do today. Am I missing something? I am not an economist.