Button Street Vendors - Perfect Competition
Political buttons were a hot commodity during the presidential campaign. With the inauguration only 10 days, buttons vendors are busy make commemorative Barack Obama inauguration buttons.
I happened to be in Denver several months ago during the Democratic National Convention. It was amazing to see all the button vendors. These small business owners were selling a wide-variety of buttons in a variety of sizes. Most buttons averaged about $5 (or 5 for $20). The cost to make one of these buttons was around $1.00. 500% mark-up on a product is pretty good.
Both the Republican and Democratic National Conventions lasted about a week. Selling buttons during an event like this is capitalism at its finest.
For sake of argument, I’m going to assume that several of these vendors had their own button machine. I’m also going to focus more on street vendors as opposed to vendors with their own booth at the convention or near the convention.
Why is a button street vending a perfect example of capitalism? Well, its a great example of perfect competition. For perfect competition, several conditions must be met.
- Low barrier to entry. A street vendor can start a business for a couple hundred dollars. It’s not a stretch to say anyone can start this business.
- Large number of small producers. When I was walking in Denver, I passed 5 street vendors in two blocks. Many of the these vendors had a piece of cardboard that displayed the different buttons they offered.
- In a perfectly competitive environment, every product is identical. This is the one area where the perfectly competitive environment breaks down a little bit. There is a lot of variation in what the button says.
- Perfect information between buyer and seller. As a consumer, it’s very easy to obtain information about the product and the competition. Researching the competition is as simple as walking across the street.
- Firms must be price takers. In laymen terms, the price that is charged for a button is set by the market. Because there are so many street vendors, a man charging $2 or $3 more per button is going to suffer because a consumer can just go across the street to buy a cheaper button. While walking through Denver, I noticed most buttons were hovering around $5.
If you are a small business owner, this may seem like a difficult environment to operate in. Not necessarily.
The beauty of a week long event like the DNC and RNC is immediate market feedback. After one day of selling buttons, you can already identify trends in the market. Maybe people are buying big buttons and funny buttons but not policy driven buttons. The next day you can adjust your product line. Each morning can bring an entirely new set of buttons. Each day, you can also see what your competitors are offering and at what prices. Often, a person buying a button will already be wearing a couple buttons, and you can see what people have already bought. Another way to differentiate yourself is location, location, location.
In my opinion, these are just a few reasons why button street vendors are an example of capitalism at its finest.
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