Jan 13, 2008

Retailing: Why does XL abound but M and L always sell out?

Most of us have experienced buying clothes but never being able to find the size we want. Particularly during clearance times, it seems that there are always excess articles in XL and XXL sizes but rarely any left in M and L. Economic reasoning tell me that this should not be so – it represents a relative misallocation of resources that could be more optimally arranged.

At its most basic level this phenomenon can be described as a relative shortage or surplus. There is a relative surplus of XL’s and a relative shortage of L, M, and S (sometimes there is a surplus of smalls though also; typically its L and M that sell out). Economists know that shortages and surpluses should generally not occur if there are no price controls in the market.

Given this situation, the producer should have an economic incentive to reduce production of XL articles of clothing and increase production of mediums and larges, since doing so will cause more transactions to occur at a higher profit level for the producer.

Because how widespread this phenomenon is, my intuition tells me that there is something else going on here. Anyone have any insights?

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