Markets Gift Cards - Loyola Marymount University.pdfVIP

Journal of Economic Perspectives—Volume 21, Number 2—Spring 2007—Pages 227–238 Markets Gift Cards Jennifer Pate Offenberg This feature explores the operation of individual markets. Patterns of behavior in markets for specific goods and services offer lessons about the determinants and effects of supply and demand, market structure, strategic behavior, and govern- ment regulation. Suggestions for future columns and comments on past ones should be sent to James R. Hines Jr., c/oJournal of Economic Perspectives , Department of Economics, University of Michigan, 611 Tappan Street, Ann Arbor, MI 48109- 1220. Introduction The Mobil Oil Company introduced the first retail gift card that recorded value on a magnetic strip in 1995. In under a decade, such gift cards replaced apparel as the number one item sold during the Christmas season (Deloitte and Touche, 2004). Figure 1 shows how total sales of gift cards have increased since 1997, exceeding $60 billion in 2005 and heading for $80 billion in 2007. The average American consumer purchases seven gift cards annually, spending approximately $250 in total, according to a ValueLink (2004) consumer survey. The National Retail Federation (2005) estimates that the end-of-the-year holiday season is responsible for roughly 30 percent of annual gift card sales; that is, holiday sales of gift cards reached over $18 billion in 2005. The average consumer spent $88 on gift cards over the 2005 holidays, approximately 16 percent of their gift budget. Consumers can now buy gift yJennifer Pate Offenberg is Assistant Professor of Economics , Loyola Marymount University, Los Angeles, California. Her e-mail address is joffenberg@ . 228 Journal of Economic Perspectives Figure 1 Gift Card Timeline (annual gift card sales in billions of dollars) 90