Page 160 - DECO101_MICRO_ECONOMICS_ENGLISH

Unit 10: Market Structure – Perfect Competition

to bring to market - and whether to become a concept store or remain independent, and Notes
which suppliers to do business with. And with all this activity, no buyer or seller has a
negligible impact on the market price, and everybody in the channel of trade is a price

taker, earning the bare minimum profit necessary to stay in business.
Last year and this season are good examples. In 2005 we had our best year ever for the sale
of high-end road 700c bicycles selling above $1,000. And in 2005 the typical bike shop lost 5
margin points on the sale of new bicycles, continuing an unfortunate trend of losing money
on the sale of new bicycles that has plagued our channel of trade for over a decade.

High-profit bike shops, while they performed much better than the typical shop, also came
in just below their cost of doing business on the sale of new bicycles in 2005, the fi rst actual

loss for high-profit shop on the sale of new bicycles in a decade.
Despite the continuing, and apparently growing losses on the sale of new bicycle, the U.S.
bicycle industry posted one of its best years for apparent market consumption in 2005 -
second only to the record set in 2000.

2006 started off well enough, but now as we enter the 3rd quarter of the year, some bicycle
brands are reporting overstocks from last season, and retailers are reporting some 2006
models already are out of stock as the brands introduce and start to deliver 2007 models.
History does matter, and in economics, path dependence refers to the way in which

apparently insignificant events and choices can have huge consequences for the
development of a market or an economy. In the case of the specialty bicycle retail channel
of trade, the collective choice not to adopt Uniform Product Codes, or UPC’s has come back
to blind the industry again, and again over the last twenty five to thirty years.

The seemingly insignificant, competitive based choice of not adopting UPC’s has made

bar coding technology, and the full power of its inventory and sales tracking effi ciency
uniformly unavailable across all levels of our channel of trade, making real channel
efficiency impossible. Simply stated - brands and manufactures don’t know what is

selling at retail and retailers have little or no input or influence on what is reordered and
manufactured to refill the supply pipeline. As most economists will tell you...where we

have been in the past determines where we are now, and where we can go in the future.
This, in turn, leads to the importance of information.

Economic and channel efficiency is likely to be greatest when information is comprehensive,
accurate, and readily and cheaply available. As evidenced by the specialty bicycle retail
channels recurring pattern of having too much or not enough, many of the problems facing
economies and markets arise from making decisions without all the information that is
needed.
Currently our channel of trade operates on the premise that if a brand or company can
acquire or gather more information than its competitors it is a good thing. However,
economists will tell you that asymmetric information, when one channel player knows
more than the other channel players, can be a serious source of ineffi ciency and market
failure.
Uncertainty can also impose large economic costs. The power of the Internet has greatly
increased the availability of certain information. However, even with all its information
power, there are specialty bicycle retail channel inefficiencies, like not knowing what is

actually selling at retail, that the Internet will not be able to solve. Accordingly, uncertainty
- literally not knowing, will remain a huge source of specialty bicycle retail channel
ineffi ciency.
And this inefficiency makes our channels blindness complete. Potentially the most useful

information, about what will happen in the future...or the ability to more accurately forecast
Contd...

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