Unit 3 - Economic Theories and Models

Introduction

This section of AIHM 577 Fashion Theory will examine the economics of fashion and economic models used to explain fashion change. Before continuing with this section of the course, you should complete the readings and questions for Units 1 and 2.

Before I give you some background on economic theories and models, I do need to set the context for my brief remarks along these lines. Since my background is in social psychology, I do not even attempt to try to be a fashion economist. However, because these are important theories, I will provide a brief overview of the economics of fashion and then rely on the readings to provide you with more specific information.

Because fashion can be considered an economic commodity, economic models have been applied to the study of fashion. These have centered on how supply and demand of fashions relate to the cost of fashion objects. We know that the costs of fashions change as the object goes through the fashion process. Fashions tend to be expensive when they first come out and then become cheaper over time. There are a number of reasons for this: 1) design costs are high for new innovations, 2) the risk cost is higher for new innovations, 3) smaller quantities of new innovations are produced which limits the supply leading to higher costs.

A number of economic terms have been applied to fashion. For example, fashion has been analyzed in terms of elasticity of demand. Elasticity of demand refers to the degree to which price changes affect demand for a good. Consumer demand for fashion is considered to be very elastic, in that small price changes will result in large changes in the quantity demanded.

The fashion industry is a good example of monopolistic competition, a term used to describe a market situation in which a relatively large number of small producers offer similar but not identical products. The greater the difference in products, the more a monopolistic element comes into play. The greater the similarity in products, the more purely competitive elements come into play. Thus, companies attempt to distinguish themselves from other companies that produce similar products. One way in which this has been accomplished is through brand name. A distinguishable brand name that portrays a particular image differentiates products in the consumers' minds.

As you explore the economics of fashion, think about how the fashion industry has become increasingly globalized -- that is, how various nations nations engage in specific aspects of the design, marketing, production, and distribution of fashion items to consumers around the world.