CHRISTMAS is coming and retailers are beginning to push their offers hard. The first page of a Google search for “Christmas Toys 2012” is full of sites announcing the hot must-haves of the year. In total, there are over 75m results to be perused. Last year it was Mishling Tree Monsters and Doggie Doo that proved the most popular. And readers of a certain age will recall the commercial triumphs of Teletubbies, Buzz Lightyear and Teenage Mutant Ninja Turtles.
Fond though these memories might be, the runaway successes bring tears as well as joy. Every year, cult toys become hard, or even impossible, to acquire as demand outstrips supply.
Perhaps we should look to Nick Clegg and Vince Cable for inspiration, for a pledge to eliminate the failure to anticipate trends. Market short-termism spoils Christmas for many of our poorest and most excluded citizens. Reform of the House of Lords and of the voting system are an integral part of the change of mindset required to combat the failure of the Christmas toy supply. An urgent review must be undertaken to prevent shortages arising in future, including legislation to force the banks to lend.
Or is there something deeper involved? Uncertainty is inherent in industries in which fashion plays an important part. The film industry is an obvious example. Even the presence of big stars and huge advertising budgets is no guarantee of success. If the first wave of audiences does not like a big release, the information will spread rapidly, and the studio will be left with a flop – like the $200m (£123m) loss-maker John Carter earlier this year. Similarly, low budget movies can become hits.
Markets, like those for films or for Christmas toys, raise serious problems for conventional economic theory. In the orthodox theory of consumer behaviour, the tastes of individuals are given, and the market acts to comunicate them to producers, so that appropriate quantities of the relevant product can be supplied.
But when a new release or product is issued by the film or Christmas toy industries, it is not subject to given tastes. Consumers do not know in advance whether they will like it or loathe it. In the case of toys, this produces a problem for buyers from the retail chains, who are trying to second-guess preferences that are not yet formed. Further, one consumer’s attitude depends critically on another’s. Your child wants the number one toy because every other child wants it too. As soon as such preferences begin to emerge, they can compound with great speed and leave producers lagging behind.
The world as a whole is becoming less like the economics textbooks and more like Ninja Turtles. Think of the clamour for Apple’s iPhone 5. Policymakers in both the public and private sectors need to alter their mindsets to cope.
Paul Ormerod is an economist at Volterra Partners, a director of the think-tank Synthesis, and author of Positive Linking: How Networks Can Revolutionise the World.