Black Friday Frenzy — The Economics of Microcosmic Spending

Growing up, I would wait in front of my home’s desktop computer for it to reach noon on November 25th. I knew that, by then, there would be tens, if not hundreds, of “Black Friday Worst Moments” compilation videos on YouTube, showing the absolute pit of humanity to be found in the aisles of Targets, Walmarts, and malls across the country.

There would be story after story, clip after clip, of people ravaging over the last 40” TV for a mere $59.99, or people scaling the shelves at a Victoria’s Secret PINK store for their last discounted sherpa sweatshirt. No matter what it was, I was entertained by how deals — especially ones as significant as what can be found on Black Friday — motivate people to act (crazy, might I add).

But what is the actual incentive behind Black Friday besides steep discounts? Rather, what do retailers gain from marking their merchandise down this one day of the year, and how has Black Friday been superseded by the biggest digital event of the year, Cyber Monday?

According to the History Channel, Black Friday’s origins have been widely contested, but the story goes that it was first coined in 1950s Philadelphia to describe the post-Thanksgiving shoplifting bedlam in stores across the city. By the ’80s, however, America’s largest retailers conjured ways to reverse its dark history and make a huge, multi-day event out of it that allows them to turn gigantic profits — but how?

You may have noticed that Black Friday markdowns, especially at big-box retailers like Target, Walmart, Best Buy, and others, tend to be on big-ticket electronic items like televisions, speakers, and computers. With these items typically being so expensive, why would a business deliberately lose money on its sale? Well, according to Forbes, money is made through locking you into a “profitable future relationship” with them, via methods like warranties or replacement plans. Even if you buy a television at 40, 50, or 60% off, that TV may break or prove otherwise dysfunctional within a few months, requiring you to return to the store to buy something for it later down the line. This concept — that of loss leadership — is the crux of the economic incentive structure for businesses on Black Friday.

What’s the deal with Cyber Monday, then? As a majority of Americans welcomed personal computers into their households in the late 90s and early aughts, the sales potential couldn’t be ignored by retailers. Officially launched in 2005, Cyber Monday has been the capping of the sales bonanza started on Thanksgiving, and with the advent of smartphones, tablets, and other miniature electronic shopping malls, has surpassed Black Friday in total revenue generated. Especially in the years since the pandemic, online shopping has become the default nationwide. This year, American shoppers shelled out $12.4b online on Monday, the highest figure to date. The incentive structure is similar to that of Black Friday, except on a much wider and broader scale as it includes exclusively online and smaller retailers.