6/28/2004

Price Fixing in the Bicycle Market

Lately in class we have spent some time discussing market structure and the 4 types of suppliers/sellers. The bicycle industry was used as an example a couple of times. One company was used in the pricing matrix to show how a supplier dictating price would benefit both the supplier and the seller.
Unfortunately even in an oligopolistic bicycle part industry (virtually only two competitors) sometimes dictating price can backfire on a company.
A recent article By Michael Gamstetter in the Bicycle Retailer and Industry News discusses the frustrations of some retailers not being able to compete on price for customers’ business due to more and more distributors/manufacturers forcing prices on consumers. If the retailers don’t play they’re blackballed Shimano bids Branford Bike Adieu
Market share leader Shimano Components is surrendering its 20 year dominance to former industry leader Campagnolo by trying to monopolize the entire market and failing miserably in the process.
So what will the consumer gain from all of this infighting? For now not much. The bicycle consumer is forced to no longer shop on price (everyone is charging the same) but more on the speed and cost of shipping. Local bike shops who saw sales plunge as mail and cyber order companies grew because of cheaper pricing won’t gain much business either, because they’re forced to charge the same price also.
In the end nobody is a winner and until free market competition gives consumers more choice of price everyone is a loser.

2 comments:

Dr. Tufte said...

A big message to carry away from post like this is that the economic forces and market forces are always working, even when people and firms try to suppress them.

In this case, when manufacturers pushed to keep vendors from competing on the basis of price, they found other ways to compete, such as price and speed of shipping. My guess is that there may also be competition in customer service, free advice, tune-ups done in the shop, give-aways of small items at sale time (e.g., here, have a water bottle to go with that), and other features that allow a vendor to differentiate itself from others.

C-Dizzle said...

This article interested me a little in that I have a bike that needs some repairs.

I’ve been shopping around recently looking for replacement parts to throw on my wrecked bike. I haven’t seen a big difference in the prices of a part from one seller to the next. This article definitely puts some light on why.

It’s amazing that these companies are selling their parts at such a high price. I guess it’s expected because of the domination Shimano & Campagnolo has in the market, heck they are the market.
The parts they produce are so inexpensive to make but then they sell for 4-500% their actual cost. I just recently replaced a single chain ring on my bike for $35. If you haven’t seen a chain ring lately, it’s nothing special. It could probably be produced for a buck or two. That’s nearly a 3,500% markup!

Someday I hope to have the capital to pay regularly for such items but for now I wish the prices would drop!