Calling Consumers: A Game Theory Look into Fast Fashion

Although we all like to think that the decisions we make are for the best, it is important to dive deeper into what “best” really means. Meet fast fashion- a perpetual cycle in society revolving through trends, manufacturing, commerce, and ultimately vanishing from our closets into another cycle. The garment industry is not new to success, with a market share that is estimated to reach $260,930 million by 2028; a CAGR of 3.1% from 2022-2028. However, beneath the glitz and glamour, the industry is nothing short of a house of horrors, with manufacturing workers being subjected to poor, and at times outright dangerous, working conditions.

In 2013, Rana Plaza factory, a garment factory building in Bangladesh collapsed, killing approximately 1100 people and injuring 2500. Ten years later, disasters of that scale have seemingly been avoided by the Accord on Fire and Building Safety in Bangladesh agreement between brands, factories, and trade unions, which was made less than a month after Rana Plaza. However, incidents continue to occur in Bangladesh’s garment industry, between the time of the Rana Plaza’s collapse to 2018, at least 35 additional accidents in clothing factories have taken place, resulting in 27 deaths. Hence, even with the economically prosperous industry, poor working conditions regarding the production of clothes are still a widespread issue. These instances warrant an investigation into why more decisive actions have not been taken to improve the manufacturing industry’s poor working conditions. To address this, it is useful to look at the decision-making processes through the lenses of game theory.

Fast fashion, characterized by its plethora of brands, rapidly changing collections, and cheap production costs, often includes coordination problems for its key players. For simplicity, there are two players in this game of the decision-making process regarding work safety in factories: brand owners and producers. Coordination problems are manifested when parties act in their self-interest, which can lead to suboptimal outcomes for everyone involved. In the context of investment decisions regarding the provision of a safe work environment, coordination problems are undeniable. This is because the brand and factory owners’ incentives to align their decisions in order to construct adequate working environments are like matching out-of-trend clothing.

Specifically considering the case of the Rana Plaza disaster, about 29 brands were sourced there, including Walmart, JCPenney and Mango. Within this context, the incentives of this game are as follows:

Brand Owners: Minimise costs and maximize profits, which involves having a high demand in consumer purchases plus maintaining a positive image.

Producers: Deliver high quantity rapid goods at low costs for the brand owners; maintaining relationships with them and obtaining contracts.

As the fast fashion industry's prime producers like the H&M Group and Fast Retailing accounted for 11.3% and 10.4% of the revenues respectively in 2019, they captured a shockingly tiny share of the industry’s profit. As a result, even though, economically speaking, the decision to make investments to improve worker safety can enhance productivity and increase the demand for these goods, it would be more profitable for the individual producers not to undertake the costly investment and instead to let the other brands do it as they all share the facility. In simple words, it is just always better to be a free-rider. This results in what we call the ‘coordination problem,’ leading to a suboptimal equilibrium. Essentially, the blame game kicks in as lots of brands dismiss accountability and fail to pay up. The outcome of the decisions made by brand owners and producers has a domino effect on society; either everyone decides to invest or no one at all.

This can be applied to the case of repeated games as well, where the players interact repeatedly with consumers, letting them construct a spotlight for their reputation and track history of cooperation. To brand owners and producers, sustaining a positive reputation is extremely vital for long-term economic prosperity.

Taking a deeper look into the players' decisions with the inclusion of consumers affecting the profit, we are able to see the impact of these new incentives on their decision-making process. This corresponds to the concept of signaling as the decision to invest in improved work conditions can work as a strategic advancement, demonstrating to consumers that the brands correspond to their values. Let’s think of it this way- if a significant number of consumers boycott fast fashion due to unpleasant working conditions in its production, that will negatively affect the profit for brand owners and producers due to lower demand. Hence, based on these incentives, it would be a no-brainer for the brand owners and producers to undertake the investments needed as it will enhance their reputation positively for future interactions, furthering brand loyalty.

Conversely, if the consumers did not change their behaviour in purchasing fast fashion, knowing about the situations of horrible working environments, the decline in their profits would be trivial. This would lead to an outcome of the brand owners and producers deciding not to invest, as the impacts of the unsafe working environment are not internalised. Why spend money on an investment that is not generating much return? This can be a factor explaining why alarming incidents are still occurring in Bangladesh’s garment industry, there simply isn’t a significant amount of consumers changing their purchasing habits after the Rana Plaza incident. Just months after the incident, for example, H&M’s drop in global sales jumped back with a 14% increase during the first two weeks of June.

In this industry of fast fashion, the game shows how self-interest rationality can lead to inefficient outcomes in the decision to invest in better working conditions. As difficult as wearing a SuperPuff Jacket in an extremely heated summer is, the obstacle lies in aligning the incentives of the players with the benefits of undertaking those investments in order to break the pattern of suboptimal decision-making in this industry. Enacting laws and policies is one way as the players would be obliged to follow suit. For instance, diligence acts were introduced in Germany, where heavy fines and potential bans would occur if companies did not address or function to identify the negative impacts they contributed to, which negatively impacted people as well as the planet. As a result, a transition in the incentives of players to one that takes into account the ethicality of workers and sustainable innovations is a key factor in promoting investments geared toward worker safety. In this evolving landscape, laws and consumer choices work in tandem, urging companies to step up for better working conditions and ethical production decisions. So, shop up! It’s time to make every purchase count.