The Diamond-Water Paradox in Retail Security
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Walk into any major pharmacy or grocery store today, and you’ll likely see a perplexing sight: everyday hygiene products like razors, deodorant, and toothpaste locked behind plexiglass cases as though they were precious gems. Meanwhile, essential food items like milk, bread, and produce remain freely accessible. Why the discrepancy?
This retail trend reflects one of economics’ oldest puzzles—the paradox of value, also known as the diamond-water paradox. This concept has puzzled people for centuries but finds new relevance in our everyday lives as pharmacies and supermarkets lock up seemingly mundane items. The answer, of course, lies in a careful understanding of economics.
Understanding the Classic Diamond-Water Paradox
Let’s start by revisiting the classic economic puzzle that dates back to Adam Smith’s seminal work, The Wealth of Nations (1776). Smith observed that water, an essential resource for life, was inexpensive. Diamonds, a non-essential luxury, command much higher prices. He phrased this observation in a way that is still cited in some textbooks today:
Nothing is more useful than water: but it will scarcely purchase anything; barely anything can be had in exchange for it. A diamond, on the contrary, has scarce value in use; but a very great quantity of other goods may frequently be had in exchange for it.
Economists resolved the paradox in the late 19th century with the concept of marginal utility—the additional satisfaction or value gained from consuming one more unit of a good. Yes, water’s total value is quite high since we need it to survive, but its abundance makes the marginal utility of each additional unit quite low. Thus, the price remains low despite its overall importance. Conversely, no one needs diamonds to live, but society largely considers them rare, desirable gems. Its perceived rarity results in a high marginal utility for another unit and thus results in a high price.
The Paradox of Value at Pharmacies and Grocery Stores
Fast forward to today, and Smith’s paradox plays out on the shelves of Walmart, Target, CVS, and other major retailers across the world. The items locked behind plexiglass aren’t diamonds, but they are relatively expensive compared to their everyday importance in our lives.
High-valued sanitary items like razors, deodorant, and toothpaste are expensive relative to their everyday importance. Don’t get me wrong, they are important for daily hygiene, but they aren’t essential to our survival in the same way that food and water are. Their high price per unit and portability make them prime targets for theft, just like diamonds and other gems.
Contrast that with food staples like milk, bread, and produce, which provide a lot of total utility because of their ability to keep us alive, but have a low relative price due to abundance and low marginal utility. Most food items are also bulky, making them less appealing for theft and resale. It’s their low marginal utility, however, that explains why they aren’t typically locked up in most stores.
Economics Meets Retail Security
The marginal utility theory explains why pharmacies and grocery stores opt to lock up specific items. High-value, easily concealable items like razors and toothpaste are frequent targets of theft because of their high marginal value. Each additional razor or toothpaste tube is valuable because of its high resale potential on online marketplaces or in informal, street-level trading. Despite being everyday products, the relatively high marginal utility makes the replacement cost substantial. Thus, stores lock them up to prevent theft.
The problem? Locking up essential goods inconveniences honest customers, leading to a potential loss of sales if shoppers can’t easily access what they need. Retail theft may not even be as bad as some chains make it out to be, but companies have still tried to balance security with customer service. Some stores experiment with alternative theft-prevention methods like keeping high-value goods close to staffed registers or using security tags. Since essential food items like milk and bread have a low marginal utility, the replacement costs and theft risks. Locking up basic food items does not provide enough benefit to outweigh customer inconvenience.
Final Thoughts
Today’s retail landscape mirrors Smith’s paradox of value much more closely than many people realize. Despite their essential nature, food items remain on open shelves due to their low marginal utility. Conversely, non-essential yet portable hygiene products are locked up due to their high marginal utility.
The paradox of value remains relevant, with marginal utility providing a framework for understanding modern retail security. As security concerns evolve, retailers must balance customer convenience with protecting high-value goods. Expect to see more locking mechanisms on seemingly mundane items in the future. While these items may not be diamonds, they certainly hold more value in the eyes of shoplifters than meets the eye.
Target has said that theft of merchandise reduced their 2022 profit by $700 million [Yahoo! Finance]
On average, retailers reported an inventory shrink of 1.6% of sales, which is in line with shrink rates in 2019 and 2020 [National Retail Federation]
Larceny has been declining nationally since 1990, with an especially steep decline in 2020 and 2021, followed by a rebound in 2022 [Brennan Center for Justice]
The median value of goods stolen in shoplifting incidents grew from approximately $75 in 2019 to roughly $100 in 2021 [Council on Criminal Justice]
A 2022 survey found laundry detergent to be among the most stolen items in organized retail crime [Business Insider]