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a blog from young economists at Nova SBE

Is waiting in line Pareto efficient?

“Our willingness to wait reveals the value we place on the object we’re waiting for”—Charles Stanley

On the opening day of Ikea Matosinhos, the first 100 individuals to arrive at the store with an item of antique decoration received an Ikea gift card worth 100 Euros. Also, in June of 2014, a well-known Spanish brand, Desigual, gave to the first 100 half-naked customers who arrived early to their new store in Berlin two items of clothing. Situations like this are very common, but what is really interesting is to think about them in economic terms: what happens when we wait in line for hours to get something for free?

Let’s think about this in a Pareto efficient sense. A situation is Pareto efficient “if there is no way to make any person better off without hurting anybody else.” Intuitively this would mean that if there is some way of making some group of people better off, it should be done. So, regarding the second example, for instance, why shouldn’t the brand offer cloths to 100 individuals on the condition that they would have to be the first ones to arrive at the store?

Firstly, there is a cost of receiving the brand’s cloths or accessories, namely the cost of waiting in line. In this context, we move from the economic concept of “willingness to pay” (i. e. the maximum amount an individual is willing to sacrifice to acquire a good) to a similar one: “willingness to wait”, which is no longer measured in monetary terms but in hours. The customers are willing to wait outside the store in order to be the lucky ones to receive the cloths because they really want to earn the brand’s cloths and because they value them. In contrast, individuals who do not value this brand’s cloth won’t wait. So, the willingness to wait of the latter individuals is lower than the willingness to wait of the first group of individuals.

Secondly, there is the possibility that the individuals that waited in line sell the items they got to the ones that were not willing to wait because of the aforementioned fact: the individual’s willingness to wait is different. This leads to an inefficient allocation of the items, since willingness to wait does not deplete all gains from trade (i. e. there would be some individuals willing to trade the cloths after the cloths have been allocated). Consequently, a Pareto efficient outcome is not possible, because this doesn’t represent equilibrium. There is someone who is willing to supply an extra unit of the good at a price that is less than the price that someone is willing to pay for an extra unit of that good. Generally speaking, these two persons could be better off.

Finally, we know from Microeconomics that when we allocate a good using a price set in monetary terms, in equilibrium, the money paid by the demanders provides benefits to the suppliers of the good. In contrast, what we conclude from the example above is that allocating a good using waiting time will benefit neither the supplier nor the buyer, since waiting in line imposes a cost on the consumers of the good and provides no benefits to the suppliers, in this case, the brand. Consequently, waiting in line can be seen as a part of the relative price. Moreover, waiting in line results in a loss of economic efficiency, since people who wait in line pay a price but no one else receives a benefit from the price these people pay!

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Author: studentnovasbe

Master student in Nova Sbe

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