Mitumba and Perfect Competition

Anybody who has taken an economics course is familiar with the term “Perfect Competition.” It is a market structure in which there are many buyers and sellers, there is free entry and exit into the industry, firms sell an identical product, buyers have perfect information about the product being sold, and most importantly, firms are price takers, meaning that firms cannot control the market price of their product because of their equally small market share. Anybody who has taken an economics course also knows that perfectly competitive markets are virtually hypothetical and are basically just a benchmark to compare real-world market structures. On very rare occasions, nevertheless, there are markets that are extremely close to being a perfectly competitive market. One interesting example is the Mitumba market that takes place in many African cities.

In Swahili, Mitumba literally means “bundles,” which refers to the bales of clothing thrown away by developed countries such as the United States that are shipped to developed countries to be given a second life. Last week, I wrote an article about how the act of reusing creates a completely new market, and this is another great example. Mitumba comes from the clothing that wasn’t bought at large second hand retailers such as Goodwill. It is then sent to a wholesale warehouse such as TransAmerica Textile recycling, where shirts are sorted based on their quality. Clothes shipped overseas come from the median quality standard: they are in good enough shape to not be cut up as a rag or ground up to become stuffing, but they are not nice enough to be re-circulated in the United States as vintage clothing. They are then shipped to used clothing warehouses in countries such as Kenya, who imports about 100,000 tons of secondhand clothes a year. Here, thousands of bundles containing hundreds of articles of clothing each are sold for merely cents per pound that Mitumba retailers sift through, and ultimately sell for unsubstantial, but ultimately worthwhile, profits.

The Mitumba market virtually hits all of the checkpoints to be considered perfectly competitive. First, there are many buyers and sellers. It is an extremely popular way to shop for a wide range of socioeconomic statuses in Africa. An average Mitumba market has hundreds of vendors, and thousands of buyers. In fact, in Nairobi, Kenya, it is estimated that about 65,000 people work in Kenya’s largest Mitumba market, Gikomba. It is relatively easy to enter the Mitumba market because purchasing the clothes from the wholesale bundles is extremely cheap, and vendors pay less than a dollar a day to the city to maintain a spot in the market. Because Mitumba is a physical face-to-face market, consumers know exactly what they are getting, and how much they should pay for it. In addition, the items are virtually homogeneous. Although there are minor differences in the design and quality of the clothes, the used clothing is extremely similar. Finally, because there are so many vendors with almost no market power, it would generally be a bad idea for a seller to deviate from the price that other vendors are selling. This means that Mitumba sellers are more or less price takers, give or take changes in price based on the condition and content of the article of clothing.

Most uniquely, the Mitumba market works without government intervention. It is a very self-sufficient market that has created thousands of jobs in the private sector. In a book called The Travels of a T-Shirt in the Global Economy, author Pietra Rivoli follows a Mitumba vendor in Tanzania named Geofrey. Although vendors have insignificant market power, they obtain a self-sufficient income that has lots of room for growth. Within the few years that Rivoli talked to Geofrey, he was able to make enough profits to begin to invest in the wholesale sect of the Mitumba market, and eventually in real estate around the area he lived in. He became a successful entrepreneur that started began with the ultra-efficient market of Mitumba.

For more information on the Mitumba market, and to listen to another point of view that expands and on Rivoli’s book, listen to NPR Planet Money’s Episode 502: The Afterlife Of A T-Shirt