An article titled Innovations Threaten the Neighborhood Bike Shop written by Jim Rendon was published by the New York Times on January 27, 2016. I remember reading this article in early February and when we covered the chapter on monopolistic competition, it came to my mind again. The article begins with the readers being introduced to Sean Sweeney, a cyclist that lives in Wayne, Pennsylvania. Mr. Sweeney expressed his hatred toward hauling his bikes to a local bike shop to be tuned up and repaired. It is a lot of work for a fifty-nine-year-old man to be doing and it is also an inconvenience. But all of his problems are solved when he is introduced to Seth Samson, a bicycle mechanic who works for a company called Velofix. Velofix is a company …show more content…
Also, the bicycle manufacturing industry exhibits characteristics of a monopolistically competitive market. A perfectly competitive market is a market structure where all firms sell an identical product, all firms are price takers (they cannot control the market price of their product), all firms have relatively small market share, buyers have complete information about product and prices, and there is free entry and exit. In the case of the bike repair industry, bike repairs are the same regardless of who performs the repair. If I need a bike assembled, there are multiple places that will assemble the bike the same way that the shop down the street would. Most bike repair shops have to be price takers because if they set their price for their services higher than the market price then their customers will just go to another bike shop. Of course, unless there is only one bike-shop in a town, then they could have a better chance at being a price maker, but it all depends on the shops location. There can be a few barriers to entry in regard to opening a brick and mortar bike-repair shop (such as start up funds, licenses/permits, etc…) but that doesn't mean that you can’t repair bikes from your garage at home. So essentially, anyone can run a bike repair …show more content…
I am sure that some bike shops have already begun doing this and have been experiences benefits from branching out and reacting to the changes within the market. They should also start thinking futuristically and trying to predict possible changes within the market. We see this happening in many different markets. Huge book suppliers are putting local book stores out of business. The same goes for the record stores, it was only a matter of time before it happened to the bike shops. The convenience of receiving a product to service at home is the ultimate
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The negative outcome with this strategy would be that it may not lock-in retailers. More research and negotiation with retailers will be needed. Another negative affect would be that this strategy would be costly. We would have to see if we are financially stable to invest.
Low product differentiation and economies of scale: There isn’t much product differentiation at play in the retail industry as there are well known manufacturers whose products are offered for sale, which leaves price to compete on. Current well established retailers with thousands of stores enjoy the economies of scale to control their cost that a new entrant might not be able to replicate after immediately entering the industry.
There are only a few firms that make up this industry and they have control over the price. These companies have high barriers to entry the market. The products they produce are similar which cause competition. There is both good and bad when it comes to oligopoly and monopolies. Some good things about oligopoly are by developing product innovations and taking advantage of economies of scale. With oligopoly it is more likely to expand production capabilities, promote economic growth, and they develop change that advances the level of technology ("Oligopoly," 2000). Some bad things about oligopoly is that they tend to be inefficient in the allocation of resources and promotes the concentration of income and wealth ("Oligopoly," 2000). They charge much higher prices and end up producing less of an output than the efficiency benchmark of perfect competition. One of the good forms is natural monopoly. Natural monopoly exists when economies of scale encourage production by a single producer (Mayer). An example of this is your local electrical utility. As a power plant increases, the cost per kilowatt hour of electricity falls (Mayer). If we were to all use small generators to run our homes the cost of each household would be ridiculous. The total fixed cost of generators for the community would be high and the variable cost of running it would also be high. Another form of monopoly that is good is
Rivalry among existing competitors describes the intensity of competition between “Broadway’s Café” and existing coffee shops in an industry. A highly competitive industry might result from many players of about the same size, on single dominant competitor, little differentiation between competitors’ products and services
Monopolies are unfair to the consumer and laborers because they promote a “one size fits all” mentality, and limit competition which allows for price fixing. An ideal example of this is US Steel and AT&T. These public companies were
The industry does not possess major threat from new entrants due to strong barriers to entry and strong competition for retail space. There is also a strong rivalry between competitors as limited space is being contested by major players alongside
The monopolistic rivalry business structure incorporates numerous organizations offering somewhat separated items. There is a simple passage into the business sector by new firms over the long haul, and the organizations are sufficiently extensive to impact the aggregate supply. There are likewise various measurements of rivalry, including dissemination outlets, promoting, and item characteristics. The peripheral expense will be not exactly the cost at its benefit amplifying yield level. As indicated by the content, a monopolistic contender can't make long-run benefit (Colander, 2013).
Macy’s has always found creative ways to attract consumers in the past such as the botanical garden. They should consider hosting more events to build up their brand and draw more positive attention to themselves. I thought it was a great idea for Macy’s to partner up with other retail companies to expand their inventory. Instead of take the initiative to horizontally integrate, they have decided to allow other retailers to setup in their department stores. This would bring in customers that are in a rush to pick up multiple things for holiday shopping to go to Macy’s as it would be a one stop shop. Best Buy is a good example of one of the many partnerships. They already have a fan based and loyal customers, so it would not make senses if they decided to start an electronic department to compete with the current market. It would also resolve the issue of low traffic in Macy’s as it would attract more shoppers to go to Macy’s to visit the section of different
In a perfectly competitive market each firm is a “Price Taker” , i.e. the prices and wages are determined by the market and the firm is so small relative to the size of the market that they can have no influence over the market price. For a market to be
Online stores are growing in popularity and drawing attention. Because of this, other retail stores are losing that attention and business. Some major stores include Sears, Radio Shack, JCPenney, Macy’s, Payless ShoeSource, Dillards and more. These are called brick-and-mortar stores. According to www.merriam-webster.com the definition of a brick-and-mortar store is, “a traditional business serving customers in a building as contrasted to an online business” (Brick-and-mortar, n.d.). “It’s possible more than 8,600 brick-and-mortar stores will close their doors in 2017 (…) JCPenney announced plans to shutter 138 stores by July, Payless ShoeSource is closing hundreds of stores, and Macy's said it's shutting down 68 locations” (Wattles, 2017). What a shame to lose these resources and businesses, especially for those who support and appreciate the local retail option.
As technology continue to refine how products and services are delivered to consumers, competition among industry participants becomes more refined. Organizations that are able to keep up with changing technologies become leaders while those that are not fall behind. Mergers and acquisitions are increasing while causing small businesses to sell out or seek partnerships and cooperatives in order to remain competitive and relevant.
Market is separated into the three sections. The low cost Youth Bike, mid-range Mountain Bike and the high end Road bikes. Due to the very competitive market, government is regulating and prohibiting competition from other countries. Only local manufactures are able to produce, at the beginning just Mountain Bike segment, later on the rest two also.
Porter (2008) argues that the threat of entry “puts a cap on the profit potential of an industry … [and] incumbents must hold down their prices or boost investment to deter new competitors” (p. 81).