Afro-Economix

There are many things about the economy in Africa that are distinct from the US. In a lot of places, you bargain over prices. White people consistently pay more. Fruit, meat, and other foodstuffs are often all bought from different places. However, one element I did not expect is the lack of a bulk discount. In much of Africa, the price you pay for 12 of a good is simply the unit price times 12. There often is no “bulk rate:.

The principle behind the bulk discount is simple. Suppose I am a supplier, and I have one box of crackers (in Kenya, “biscuits” or more specifically in the case of salted crackers, “dinner biscuits”) that costs me $2.00 from the suppler, that I sell for $3.00. I have earned a dollar in profit. However, suppose now I am selling two boxes of crackers, that again cost me $2.00 each. In total, they cost me $4.00. If I sell them for $5, assuming I can sell them equally fast, I will again have made $1.00, so the same level of profit. Therefore, I can make just as much money by offering a discount rate. Budget shoppers in the US try to take advantage of this fact.

However, this is also based on what economists call “decreasing marginal utility”. This is the principle that consumers enjoy more of the first slice of pizza than they do of the 4th. The more of a good they have, the less they value each additional unit. It is because of this principle that selling in bulk becomes necessary.

In much of Africa, this is offset by income. Simply put, it is quite often only the wealthy who can afford to buy a bunch of one thing at any at a time. Get no illusions about how most people don’t know where their next meal is coming from. For a few people, that may be true, but my previous statement doesn’t mean people cannot afford to feed themselves. However, if I have a smaller amount of money, I’m less likely to buy a 1-pound bag of rice at once, when 2 cups now, another 2 cups tomorrow, another two cups the day after will do, and will still allow me to have the money each day, in case I need it for something else.

It is quite common for Africans to buy all the ingredients they need to cook that night, every day at the end of the day instead of buying for a week, or a few weeks at a time. Small kiosks often accommodate the tendency to buy on an “as I need it” basis, allowing the sell of things like a single cigarette or stick of gum, something that you’d never see in the States.

Therefore, if I am trying to buy 24 bottled waters at once, the principle is still probably true that I get less extra value out of the 24th than out of the 1st. However, if I can afford to buy 24 bottled waters at the same time, it means I have more money than the typical citizen. Therefore I probably can afford to pay the unit price for all 24. In case after case, I saw the income effect trump the diminishing marginal benefit effect. The fact that richer people were buying more meant more to sales prices than the fact I would get diminished benefit out of each additional unit of that good.

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