Bryan Caplan  

A Framing Puzzle

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Here's a puzzle I'd like to resolve before I teach Industrial Organization again: Why are there so many framing stores? It seems like there is a place that puts your artwork into frames on practically every street corner. According to yellowpages.com, there are fourteen framing stores in Fairfax, compared to only eight Pizza Huts.

What's the puzzle? We normally see lots of small stores in markets for frequently-purchased low-price goods. Think 7-11. On the other hand, we normally see a few large stores dominate retail in market for infrequently-purchased high-price goods. Think Best Buy.

The economic logic is simple. Retail has economies of scale, but for petty purchases, these are outweighed by transportation costs. Convenience stores cost more, but they're usually a lot closer. This is especially true for low-price items. It is probably worth 30 minutes of your time to save 50% on a $100 purchase, but not worth 30 minutes of your time to save 50% on a $4 purchase.

Where does framing fit in? I doubt most people frame more than two or three items per year. No one gets home at 7 PM and says "My God, we forgot about our framing! Luckily we can just run down to our corner framing store." Furthermore, framing is expensive. A custom frame usually runs around $100-$200. Both of these reasons lead us to expect the opposite of the market structure that we see.

So what gives? I'm genuinely baffled. A few possibilities that don't convince me:

1. My area is weird.
2. This retail market does not have economies of scale.
3. Framing is an "impulse purchase" - unless they pass by the framing store on a daily basis, people will not bother to frame anything.

When a market doesn't work in the way that economists intuitively think it should, they usually have one of two reactions. The first: "Market failure!" The second: "Maybe there is something about this market that I don't understand. Does anyone out there know more about the details of this industry than I do?"

I don't rule the first answer out of court, but the second one is usually more promising. After all, I've been in school my entire life! The world is full of people who know more about the framing market than I do. The question is whether any of them read Econlog.

Anyone?


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TrackBack URL: http://econlog.econlib.org/mt/mt-tb.cgi/338
The author at Newmark's Door in a related article titled "A Framing (Store) Puzzle" writes:
    Drop by EconLog and help Bryan Caplan figure out why there seem to be so many framing stores. [Tracked on August 22, 2005 5:10 AM]
COMMENTS (20 to date)
Craig writes:

I suggest three words -- ease of entry.

In most places you've got to have a state license to cut someone's nails. So far even New York hasn't seen fit to burden picture-framers with that requirement.

Ah, freedom.

Bernard Yomtov writes:

But getting a picture framed is nothing like buying a TV set. It's a custom job every time, not just buying a standard product you've already decided on at a good price. You want to be able to pick out the mat and frame, and generally you will want some advice on this. In addition you want to trust the store, both to take care of your picture while they have it and to do a good job.

So there's an issue of monitoring the workers. Small operations make this easier. My experience with employees of big box stores does not suggest to me that they are well-supervised, conscientious, workers.

asg writes:

Well, I can only speak about the two(!) framing stores near where I work, but both of them have branched out into selling other things, particularly lamps and small pieces of furniture.

Chevalier writes:

Well, it seems like a closely guarded business, as the PPFA (Professional Picture Framers Association) and PictureFramer.com require registration and subscription to access content--as I tried to look up statistics. Google groups turned up a whole lot of 'Start your own Picture Framing Business and Earn lots of Money from Home!!!!!!!!!!!!!!!!' messages. A little tweaking in the search string and I was able to find some testimonials from people. My impression is that, for most people, it's more of a hobby; I guess entry costs are really low, no regulations, and it's lucrative--like how everyone who's an English major wants to teach.

Jameson Penn writes:

Expanding on Craig's point, the framing business has minimal overhead which aids the ease of entry into the industry. It surely helps that most consumers would rather not frame pictures themselves.

Another thought is that framers sell their service as an art rather than a mere commodity. The matting must match the frame and not be hindered by the shape of the frame, etc. By perceiving framers as artisans, consumers are seeing a Torpedo Factory (see: Old Town Alexandria) filled with talent rather than a starbucks next to a Caribou Coffee.

David writes:

Perhaps framers are viewed as craftsmen. The price is not as importnat as the quality of the job(you don't want the image damaged). Typically the value of the item being framed is worth a lot (to the image owner) relative to the expensive frame.
Also advice on the best way to highlight the image is also valued(backgrounds style etc).

Dave Tufte writes:

My town - 25K and very isolated - has several frame shops (as well as galleries that do framing on the side). They all seem to be empty most of the time.

I do know that there are some skill trades involved. Some people with frame shops have some sort of certification in art preservation.

I also think its regarded as a low effort franchise business by people without a lot of ambition.

Craig Newmark writes:

Interesting question and interesting comments.

Tangential to your question, it might be useful to have more data on the cross-sectional incidence of framing establishments. (At least that would help rule out explanation #1.) Here's a bit. Also using Yellowpages.com, I looked for Picture Frames, Retail and found 40 establishments in Raleigh, NC.

But in the same category for Tallahassee, FL., the directory provided just 1 listing.

A few others:

Ann Arbor, MI: 14
Athens, GA: 10
Gainesville, FL: 19
Norman, OK: 6
South Bend, IN: 6
Palo Alto, CA: 14
Jacksonville, FL: 35
Blacksburg, VA: 4
Lynchburg, VA: 7
Annapolis, MD: 3
Bangor, ME: 1

Maybe I can induce an undergraduate to run a regression equation that includes income, population, population density, average age, tax/regulation/zoning or proxies for small business-friendliness, and . . . ?

gary lammert writes:

This is not market failure; it is froth. It represents peripheral phenomenon in a ocean of excess.....

Valuation fractals represent a composite integration of primarily six elements in the complex economic system: cash and savings, debt, wages, assets, lending practices, and prevailing interest rates. Each of these six broad parameters has its own complex internal dynamics and summation characteristics. In a very mechanistic fashion, following simple near-quantum and near-quantum related Fibonacci numbers, valuation fractals 'grow' to buying saturation levels and thereafter 'decay' to lower selling saturation levels. The fundamental point is that the daily, weekly, monthly, and yearly valuation fractals represent the sum total integration of those six elements and their complex interactive relationships. Pour into the economic vat: cash for daily transactions, savings available for money to be borrowed at given interest rates using prevailing lending practices for both major purchases and minor credit card purchases, balanced by on-going wages and debt servicing obligations, balanced by relative valuation of assets and their relative state of consumption, mix it up on a daily, weekly, etc. basis - and - from the vat flows forth the daily, weekly, etc. summation fractals. While lower order time unit fractals such as minutes and hours represent trading valuation saturation points, intermediate fractals represent the larger picture of on going velocity of money growth percolating through the system. The higher order or 4-yearly, 17-18 yearly and 70 year fractals represent both business cycle and asset and debt saturation levels at the basic consumer level.

There are three sequential identified ideal growth fractals followed by a decay fractal. The near quantum number time units for the three cycles are x, 2-2.5x and 2x, respectively. A nonlinear devaluation typically characterizes the second growth fractal somewhere between the 2x and 2.5x time period. The third growth fractal which ideally is 2x in length can have an extension to 2.5x. This extension of the third growth fractal has characterized both the current US equity and heavily invested commodity areas, particularly oil and gold, for the entire 128 week duration of the March 2000 secondary growth period.

Just as the complex system is an integrative process, valuation fractals which exactly represent them are likewise composite nonlinear integrations. Fractals incorporate the terminal portion of the preceding decay fractal into the beginning of the follow-on growth fractal. An elegant pristine example of this rolling integration was the 40/100/100 day cycle exactly x/2.5x/2.5x that resulted in the March 2005 top for the DJIA. The first two fractals were 'declining' growth fractals with a very characteristic nonlinear break at the end of the second fractal in August 2004. That second fractal was likewise elegant in its evolution in that it was composed of a 29/72 day x/2.5x sub fractal sequence. The probability that these precise sequences are random numerical sequential events approaches zero and elevates fractal analysis, reciprocally, to a high probability real science descriptive of the complex macro economy.

The subsequent growth fractals dating from August 2004 likewise have followed the same very precise fractal growth evolution with a 52/130 (x/2.5x) day first and second fractal growth sequence with the typical nonlinear drop between 2x and 2.5x of the second fractal. Anyone can verify this pattern using any of the major US or European indices. The third fractal US equity sequence has been a 12/30-31/28 day sequence, approaching the extended ideal form of x/2.5x/2.5x growth pattern. The major European indices ,e.g., the FTSE, DAX, and CAC have a slightly different mix of the six aforementioned underlying elements and have extended their growth - but are still confined within the 52/130/104 theoretical maximum and the theoretical Fibonacci maximum of 52/130/(1.62 X 52 = 84-85)
days. These recurrent numerically ideal patterns since August 2004 once again lend substantial credibility to the notion that the complex macroeconomy operates according to some relatively precise laws of fractal design.

What are the rate limiting factors that result in growth saturation points or asymptotes, decay selling saturation points or asymptotes, and the general nature of fractal patterning? Each of the six controlling parameters- assets, ongoing wages, lending practices, prevailing interest rates, debt load, and cash and savings - contribute to the saturation areas. Some are more important than others in determining cycle lengths and saturation points.

Assets have two important elements: relative valuations and saturation ownership. If the valuation becomes too high or too overly consumed, demand
will decease. The timing for this decrease is exactly represented by an asymptotic valuation saturation level or a single high valuation point followed by lower valuations. The valuation curves provide precise barometric information on demand relative to valuation level and relative to the consumption level. Some assets such as gas and oil must be purchased to maintain livelihood. As global consumption for the this finite resource increases, resulting price increases squeeze the null saving US consumer,
far too many living from paycheck to paycheck, to the financial breakpoint. Unnecessarily expensive US healthcare, 25 percent of the value of which goes to third party insurers and the non-value added bill collection system, can be considered yet another consumable asset, that, like 'uninsured equivalent' gasoline prices, is driving many to insolvency.


Ongoing wages and just as important the jobs that support those wages are perhaps the most important rate limiting factor in determining valuation saturation points. In the US jobs sphere, high paying manufacturing jobs with the exception of the housing industry have been significantly outsourced. As the housing bubble crests, overcapacity will become evident and high paying home construction jobs will contract. A considerable subset of jobs in America have questionable value-added real economic worth and will be lightened during consumer retrenchment. It is easy to image using the 1930's as a template of a positive feedback contracting system, where decreased ,e.g., construction jobs lead to decreased consumer spending leading to further job contraction leading to further spending contraction
and so forth.

Lending practices and prevailing interesting rates, the latter a Federal Reserve controlled parameter, work in synergy to foster money creation and asset inflation. Fractional reserve lending practices amplify the bank and money market savings used as a reserve base for lending. Extremely low interest rates, i.e., a Fed fund rate of 1 percent coupled with a lending practice of LIBOR type loans, no money down and interest only payments creates the interesting situation in which the interest cost of money is far below the real asset inflation rate. Not to borrow is to lose money that would be made with the expected inflation. Saving money under these interest rate and lending practice guidelines results in loss of purchasing power. Credit card interest rates reflect the needed higher interest rates to overcome the default rate. The last year of higher Fed Fund interest rates have resulted in both increased mortgage payments and decreased bank profitability secondary to the contracting spread of long term verses short term interest rates.

Ongoing debt load and the requirement to service that debt diminishes cash available for asset consumption and investment. Percentage wise the total debt load relative to wages and GDP has had very small incremental increases - a fact which has mistakenly reassured many linear thinking economists.
Debt load becomes a primary factor in the fractal decay process, where assets are liquated in an attempt to pay down debt. This results in a mechanistic deflationary process, lowering the value of nearly all non cash or non-cash equivalent assets.

Cash is the money that is represented by greenbacks in circulation and greenback equivalent readily convertible debt instruments such as treasuries, notes, bonds, bank deposits, and money market funds. In short cash represents the dollars in circulation and savings. The savings rate, which the Federal Reserve has bemoaned to be dangerously low and was reported to be zero in July, reflects the competition of the the various
Investment areas. With interest rates below the real(which includes housing) asset inflation rates, deposited money in saving instruments loses its purchasing power value its week that it is malinvested. Deposited money in saving instruments has been generally a bad investment in the last few years. During the decay fractal process, this scenario will be reversed with money from ongoing asset liquidation flowing into cash and cash equivalents, whose purchase power value will increase relation to asset devaluation.

These are the lumped six broad elements that are interacting with each other
to create the summation and integration valuation points, curves, saturation inflection asymptotes and fractals that respectively describe the real instantaneous state, the trending state, the saturation areas, and importantly the expected fractal nonlinearities of the complex macro economic system. Gary Lammert http://www.economicfractalist.com/

Robert Schwartz writes:

"I doubt most people frame more than two or three items per year."

Brian: Clearly, there is something strange about your marriage. Either your wife is a very unusual woman or she is hiding the bills from you.

CK writes:

Could be that there are lots of office buildings, convention centers, colleges, hotels, motels and such like service based establishments in your area. All of which provide a steady demand for framed stuff in job lots. Any Marriott will have a demand for 2 to 3 x the number of rooms for framed prints.

Peter writes:

I'd go along with the ease of entry theory, but for one thing - these are framing stores under consideration. In other words, they are not home-based businesses, meaning that the proprietors incur costs for rent, utilities, etc. Sounds like a lot of dedication for a hobby.

Will Wilkinson writes:

Either your wife is a very unusual woman or she is hiding the bills from you.

She married Bryan! What does that say about her?

dearieme writes:

It might be worth asking who owns these shops. I used to see a category of shop that seemed to belong to middle-aged wives of prosperous men, children just flown the coop, want to do something to fill the time, preferably with just a hint of arts-and-crafts about it. Anywhere close?

Mr. Econotarian writes:

My wife and I are hobby artists. We have almost no woodworking skills or tools, so generally we need to outsource framing of our artwork.

We've tried to use "pre-made" frames that snap together, but the results have always been poor compared to custom framing by experts.

I have one artist friend who is an excellent framer. He helped me make a frame for one of my works of art. It took about a day (sawing, fitting, nailing, glue drying, painting, drying paint, etc.) but it came out great.

Suffice to say that I have decided to continue to outsource my framing! I don't have whole days to blow on such things ;)

Brian Ferguson writes:

I would say that Mr. Econotarian has the answer. My father was a pretty fair amateur watercolourist. He did a bit of his own framing, but when another local artist opened a framing shop, he started using its services. It was a matter of opportunity cost and comparative advantage: in the time it took him to do his own framing he could paint a picture which he could sell for at least enough to cover his costs, including the cost of framing. I'd add, as an explanatory variable in Craig Newmark's regression equation, the number of artists in an area.

Roger writes:

Some industries have a perpetual problem of over supply. Take the hotel and airline industries as examples. They constantly struggle with oversupply because they're perceived as sexy businesses to be in. No one wants to talk about investing in the sand and gravel business at the country club. Economically it's irrational, but psychologically it's not. Besides, it's irrational economically only to the outsider. A investor in a new airline or hotel can always rationalize his investment and convince himself that his business is unique and will beat the odds. Maybe framing, perceived as an art, has similar motivations.

madmartagan writes:

I think recent comments are starting to get at the nub of the situation. I do woodworking as a hobby, and I find that it is becoming more difficult to even find the tools and construction directions I need.

For example, I was building a cabinet and wanted some help on how to best construct a miter joint. The response I got from most woodworkers was "Miter joints? Nobody uses miter joints anymore. They're too difficult, just use a butt joint."

Of course, miter joints are a higher level of quality, but with the development of modern glues, they just aren't necessary anymore- except in a few areas. Indoor trim for house construction comes to mind. If you look carefully though the quality of trim has gone down, and is usually covered up by using paint. The only other area I can think of that uses miter joints is fine wood working- (Usually using trim to conceal the butt joints, but it still requires skill)- things such as jewelry boxes, or fine frames. Thus I would guess that framing is a profession that has a relativly high human capital investment to develop the skills necessary. This would mean that the costs are found more in worker training than in material costs or store front rent. This would result in low, maybe even negative, economies of scale. (Consider also that there is always the incentive for a fully trained apprentice to leave and hang out his own shingle.)

Most mid-size to large hobby shops have a framing department. My expierence is that the prices there are slightly lower, but the frames are of significantly lower quality. (The difference between apprentice work and journyman work).

John Henry writes:

I wonder how many of these framing shops have been in business for, say, 3-5 years or longer? I wonder how many will still be in business in 3-5 years?

Without having looked at the framing business at all, I see a sort of me too approach to small businesses in general. Someone starts a store selling widgets and does OK. Someone else sees this and figures they can do something similar and they may do OK too. Then people with less than unlimited imagination see these two and figure they'll jump in too. Pretty soon you have a dozen widget stores.

SInce the market will only support 2-3 of them, the rest wind up closing in a few years.

But what do I know? A lot of the other commenters had good thoughts too.

John

Eric J writes:

You could pursue the eerie proliferation of mattress stores in Portland, OR next. My best theory is that a lot of people here have some sexual kinks that require frequent replacement of bedding...

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