With fair regularity, one hears someone talking of efforts to buy less of some commercial product, either out of a desire for global conservation or because he doesn’t like how it is produced or whatever. Invariably, he comments that his own effect on the market is small, but he wishes to “send a message” or help along some broader movement. Within a plausible model of markets. there are easily understood conditions under which this small effect is actually zero, and remains zero even if he is joined by many like-minded individuals. At which point one wonders if the “message” being sent is “I don’t understand how markets work”.
If the market supply of the offending good is fixed, one’s reduction in demand drives down the market price until all of the good gets sold. Thus there is no reduction at all in the amount of the good consumed. On the other hand, if the supply is completely flexible, then one’s personal reduction exactly translates into reduction in use. In general, most markets fall between these extremes.
Here are three possible examples:
1. Suppose that you buy the “peak oil” argument that, although we have a fair bit of oil, we only can get so much out at a time. This is arguing, loosely, that in a given year, oil supply is fixed or close to it. In that case, personal efforts to conserve, like buying a more efficient house, will lower the price of energy for others, but won’t actually affect the amount of oil consumed globally. If the goal is to lower the price, then this is just fine. If one’s goal is to increase conservation, you’re out of luck.
2. Suppose you do not wish to buy certain stocks because you find the underlying business repulsive– Walmart, tobacco companies, or alcohol being three examples. In this case, even if 80-90% of people agreed with you and refused to buy these stocks, this could well have no effect on the stock price– because the remaining people who feel no such compulsions will bid the price back to the market value. As long as the marginal buyer and seller are not conscientious objectors, the stock price is likely to be completely unaffected. In this case, your decrease in demand is not at the equilibrium of supply and demand, rendering it irrelevant.
3. Suppose you refuse to go see a movie because it is full of smutty garbage. Theater seats and DVDs have extremely high supply responsiveness (there is always another seat and DVDs are dirt cheap to make). In which case, one’s avoidance exactly translates into a reduction in quantity sold and a reduction in profits. Your individual effect may be small, but it is not zero.
Of course, if social activism is not about making a difference, but rather about feeling good about oneself, perhaps none of this particularly matters. I’m focusing on how such desires get translated into market effects. I’m using a fairly standard neoclassical market to provide the predictions. If one thinks the market deviates from that in important ways, one could conceivably get different results.