Amy and Jonah are trying to help Mateo with a toy drive inside the store, but there’s a charity event happening outside the store. Amy asks the man to leave since he’s serving as a substitute for Mateo’s charity. A crowd gathers and accuses Cloud 9 of selling products for more than the cost and keeping the profit, i.e. being a profit-maximizing firm. Amy points out that all stores sell things for more than they cost and earn profit.
There’s a sale on non-toxic, organic pillows and Garret adds that customers should be weary of what that means the other pillows contain. By providing such labels on certain products, it means customers are likely to assume the alternative products contain harmful ingredients. This asymmetric information, where the store knows more about the products than the customers do, can lead to inefficiencies in the market.
A blizzard hits the St. Louis area and customers are lined up to purchase items they now need. Garrett announces that the store has decided to ration all types of water rather than raise prices in an attempt to prevent people from hoarding water. Another alternative allocation mechanism would be to raise prices, but they have opted instead for an authoritarian approach. As Garrett names the different products under rationing, we also get a list of substitute products which shows the range of product differentiation at the store.
Marcus gets the idea to create a new type of cheese using breast milk. He pitches his idea to his coworkers in the hopes that they’ll invest in his product. He believes that breast milk cheese could enter the cheese market and compete with other, more well established varieties.
Mateo came down with an ear infection and his coworkers helped raise funds from store customers. He was secretly able to get some antibiotics so the money that was raised doesn’t need to go to a doctor’s visit. Instead, he considers spending the money on a messenger bag instead of healthcare.
Cloud 9 is rebranding their store product line, moving from Halo Brand to SuperCloud. With the switch, the store has marked the old products down by 80%. Cheyenne wants to buy as much of the old merchandise as she possibly can because of the discount. Glenn tells her she cannot set those items aside during store hours, but she is scared they will be all gone by the time her shift is over. She decides to try and hide the products around the store.
Mateo helps a customer find laundry detergent and goes through the process of naming some of the different options available. Product differentiation allows companies to offer similar, substitutable products based on customer preferences. Each focuses on a niche market or defining characteristic but are generally substitutes.
Glenn’s family used to own a local hardware store before Cloud 9 entered the market and put them out of business. Cloud 9 was probably able to take advantage of economies of scale and a large distribution network to offer competing products at lower prices. Monopolistic competition in the long run results in zero profits for firms, but if a small company already has relatively little profit before entry, a decrease in demand could result in that particular firm incurring losses and leaving the market. Because Sturgis and Sons specialized in hardware, some of those workers may be structurally unemployed if their skills are no longer needed in the local market. Later in the episode, Glenn finally shares his frustration with Cloud 9 and how they killed his family’s business because of their devotion to profit maximization.
Structural unemployment occurs when the skills and trades are no longer in demand from the general population rather than market fluctuations. Adam’s girlfriend, Amy, quickly points out that his travel agency failed because people use the internet to book travel and no long need travel agents.