Basic economics of group-loyalty and boycotts

Posted by T on June 22, 2009
Economics, Ethics

The thesis is that a minority, by patronizing stores owned by those of their own, and if the rest of the population does not discriminate in their choice of stores (and everything else being equal), the minority-owned stores get twice the business of their non-minority competitors. Note that the “minority” may be ethnic, religious, or even a voluntary association.

Say a city has 100 barbers. Let’s say these barbers are all equally skillful, pleasant to be with, conveniently accessed, and so forth, so that, everything else being in fact equal, each expects to get 1% of the city’s business.

Say 2% of the population are an identifiable group, 2% of the barbers belong to the group, and likewise the group comprises 2% of the pool of customers.

The 98% majority have little or no group loyalty; or, even if they might have, their great majority makes it seem like a moot point, and they forget about it. Say the 2% minority, in contrast, always select a barber from their own ranks.

Then their barbers get this amount of the total customers:

100% of 2%  +  2% of 98%  =  3.96%  ~ 4%

That is, all of the 2% go to their own, and 2% of the remainder “happen” to light upon a barber of the group. Likewise, the non-group barbers get this amount of the total customer base:

0% of 2%  + 98% of 98%  = 96.04%  ~96%

Thus, each of the 2 barbers from the group gets 4%/2 = 2%, while each of the non-group barbers gets 96%/98 = not quite 1%. The non-group barbers suffer a barely-noticeable drop in business, because the loss of the missing 2% has been spread around; but the group-barbers nearly double their business [see Note 1].

As the size of the minority grows, the effect becomes gradually less. However, even a minority as large as 10% gains 90% (i.e. each barber gets 1.9% of the business) by following the group-loyalty rule, provided the non-minority does not catch on and do the same. Moreover, as the group size becomes bigger, its impact on the non-group vendors becomes more and more significant, so that the ratio of group-vendor volume to non-group actually increases. When the group reaches 50% of the population (hardly a “minority” any more), the group only gains 50% of the traffic, but the non-group loses 50%. So the competitive advantage is actually a factor of three (1.5 / 0.5). A ratio of 2 is actually the smallest advantage possible, as the size of the minority approaches  the zero-end of population share.

Thus, the basic advantage to the group of self-loyalty does not depend on the group being a minority at all. Indeed, on the hypothesis, a 98% majority would realize a 50-fold advantage over the remaining 2%. This might seem like a paradox at first, since it seems to be simply the first example reversed. However, it differs in that here, the 98% limit their business to themselves, while the 2% distribute their business over the whole body. In this case the vendors in the 2% go bust.

Boycotts

Note that, except for motive, group self-loyalty is identical to boycott: limiting patronage to one’s own group describes the same behavior as “boycotting” the non-group. The motive for group self-loyalty is presumably enrichment of their own; while the motive for the boycott might be to inflict punitive economic harm of some kind — though it also might be simply the elimination of an unfair advantage held by group-loyal competitors as described above, or restoration of an unfair debilitation due to self-loyalty of the other group.

Thus, we can restate the results of the above analysis in terms of “boycott.”

A boycott of the non-group by the group doubles or more the group’s business compared to that of the non-group, provided they are not also doing a “boycott.” A boycott of the minority by the majority can be devastating if the minority is naive, i.e. if the minority distributes its own patronage evenly across all vendors. However, if the minority is or becomes self-loyal, then they restore themselves to equality — in fact, realistically, more than equality, since the boycott would tend to reinforce the group-loyalty, while on the other hand, only some fraction of the majority would honor the boycott typically.

If the minority were already self-loyal in their business patronage, the boycott would at most reduce their previous loyalty-induced advantage back to parity with the majority.

Special cases

1. A boycott that is over an issue that is not congruent with the set of players makes the situation more complicated. For example, when McDonald’s was boycotted on account of their fag-sponsorship, neither the ownership nor patronage of the targeted businesses was correlated with the reason for the boycott. In that case, faggots could have fought back by favoring McDonald’s with their business, but the result would be more complicated to analyze by virtue of the fact that the population percentage would likely be different than the vendor percentage held by the targeted entity (McDonald’s).

2. A situation in which strong segregation is already in place would render inter-group boycotts/loyalty moot. For example, in South Africa, if blacks are already not patronizing white businesses because of physical separation, then the Blacks declaring a “boycott of white businesses” would not add anything additional to the picture.

3. The analysis assumes that the average “purchasing power” is the same for each group, as well as the distributions thereof and business-entry ability. As these assumptions are relaxed to match concrete reality here or there, the situation becomes more complicated of course. Graduate students in economics could start to vary the parameters to study how the situation would change in those cases — either as a priori studies (preferable) or computer-modeled.

Homework

The reader’s homework question is to ponder the gentile boycott of jewish businesses in Germany in the 1930s. In view of the considerations laid out here, would such a boycott be just or unjust?

[Note 1: Of course the reality would play out differently. The barbers with the x2 advantage might raise their prices, being willing to trade volume for rate and so forth. This would all have to do with subjective marginal preferences, and cannot be predicted in detail. On the other hand, a commodity-business would double its volume while not doubling overhead, thus much more than doubling profit. The numbers in this simplified account should be taken to prove advantage, not exact quantity.]

Tags:

2 Comments to Basic economics of group-loyalty and boycotts

Leave a Reply

Your email address will not be published. Required fields are marked *


*