Despite the US economy heading toward what has been labeled a "fiscal cliff" retailers are enjoying the seasonal spending from consumers. Retailers, like little kids, wait almost all year for the Christmas season. However, retailers now face growing competition for the highly valued Christmas season consumer splurging. Cyber Monday is now gaining ground and market share on the retailer store's Black Friday.
According to PriceGrabber.com, Cyber Monday shoppers are estimated to increase by 4% this year to an overall high of 41%. The other blow to retail stores is that 58% of these consumers plan to shop more on Cyber Monday than on Black Friday. PriceGrabber.com claims that the increase in Cyber Monday shoppers can be attributed to free-shipping, special one-day only offers and other discounts. It also leaves one to wonder if the overall convenience of no lines, no sleepless nights and avoiding the swarms of irrational behaving people also play a role in the increase of Cyber Monday shoppers.
With little to no regulatory, or other type of barriers, in opening a retail store or starting a website to sell to consumers could this serve as an example of the effects of a perfectly competitive market? (With an assumption that the capital required is not a barrier). In order for a market to be in perfect competition five conditions must be met:
1- Homogeneity of Products - A consumer can easily find the same TV, or other item, at Wal-Mart, Best Buy or Amazon.com. Condition met.
2- Many Small Buyers - With the American public not being in the wholesale business and purchasing only enough items to meet their individual or family needs this condition appears to be satisfied.
3- Many Small Sellers - Although retail giants such as Wal-Mart exist the idea behind this condition is that sellers are competing on a level playing field without the ability to charge higher prices, etc because they have a substantial market share. Keeping this in mind condition #3 also appears to have been met.
4- Free Entry and Exit - The regulations for opening a retail store or starting an online store are within reach of most people. There may be permits and licensing requirements but these are not the same as the regulations for starting a mining operation or utility company. Thus, giving no weight to capital requirements, condition #4 is met.
5- Symmetric Information - In this condition buyer and sellers alike must be privy to the market conditions; prices, substitutes, information, etc. With the internet and other technologies symmetric information also seems to exist.
While the considerations of the five conditions has been cursory it none the less has shown that the retail markets, whether physical or online, appear to be a perfectly competitive market. As far as consumers still spending while the nation appears to be heading off the fiscal deep end, this appears to be a result of carpe diem. People are willing to continue to live their lives until the effects of what ever lies ahead begins to impact them directly.
5 comments:
Clayton Parry: 94/100 for a case of poor word agreement.
I don't really get what the first part of your post (details about retail) has to do with the second part (taking a position that retail is perfectly competitive). What am I missing?
Cyber Monday has been around for a while, but I can confirm that it's arrived in the public consciousness: my 8th grader came home from school on Monday and that's the first thing he asked me about.
I think I understand what Clayton is saying, but my question is how will all of this affect the bottom line and whose revenues will be driven down. Will there be larger players with deeper pockets using predatory pricing to force competition out of business. Who is vulnerable to these practices. Costco or WallMart could potentially engage by selling online and then offering immediate pickup at one of the local stores. This would impact sellers who are strictly online and big box stores that only have storefront sales. For example, Best Buy does not seem as well positioned to compete in this hybrid dualistic market. Their falling revenues and stock price seem to support this view.
madhatter: 44/50 for poor punctuation and spelling.
I think madhatter is missing the point of Chapters 9-10: predatory pricing is mythical. If those big box retailers are pushing price towards (their) marginal cost, that's not predatory at all.
I agree with Clayton that most people do not give enough thought for tomorrow with their spending.
Most of the economy is driven by consumer spending. This spending can be done in a brick and mortar store or on-line. One difference is that the on-line retailers are enjoying fewer regulations and taxes as the physical stores must pay now. Once the on-line retailers are taxed, they will need to increase their prices. If the quantity demanded decreases by one percent with a one percent increase in price is considered to be price elastic, how elastic will the price be with a sudden eight percent increase due to new sales tax? I believe this will cause the demand to be more price elastic.
Alexa: 50/50
Typically elasticity doesn't change much given the change in scale: so the effect will be 8 times as large in your example.
My money is not on the government for figuring out these tax issues. Their IT efforts on this count are laughable. They've had much better luck leaning on the credit car companies to block payment to sites that don't cooperate with the tax authorities. Even so, I think that the alternatives haven't flourished yet, simply because governments haven't pushed too hard on this yet. When they do, I think it will be messy, and they'll be disappointed.
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