Econs+Mkt+Structure+Project+-+Bookstore+Industry

In Singapore context: **//BOOKSTORE INDUSTRY//** ** Characteristics ** 1. __Large number of sellers__: besides a few significant large firms such as Popular, there are numerous small firms operating in the market who compete with one another to sell their products and have an insignificant share in the market ( for example, neighbourhood bookshops and bookstores in shopping malls)

2. __Insignificant barrier to entry__: The set-up cost required to enter the market is not very significant. New firms can enter and existing firms can leave the market without much difficulty or sunk cost. The main requirement to set up is to look for book/stationery suppliers and capital.

3. __Nature of product__: slightly differentiated. Most of the products are of the same brand (books of the same authors, stationery of the same suppliers such as Pilot and Pentel. However, there are differences in sale conditions. For instance, in terms of location, popular booksotres are found almost in every neighbourhood or shopping malls whereas those smaller bookstores can only be found in a specific location. In terms of physical environment, products sold in larger bookstore such as Popular are viewed different as they are sold in better environment (air-conditioning).

** Behaviour ** ** How does the feature determine bookstores behavior (pricing and output) ** __Pricing-decision__: Consumers do not know the particular price each firm charge, but do know the price distribution in the market. Consumers are sequential searchers; they visit stores to learn their prices and then compare after every visit the cost and benefit of continuing search. If the expected price reduction from visiting another store is greater than the marginal (search) cost, the consumer continues to search; otherwise, he buys the product at the lowest price in hand [1]. Furthermore, due to the large number of firms selling slightly differentiated products, the market power of each firm is relatively weak, thus, the demand curve is downward sloping and relatively price elastic. The bookstores aim to maximize profit, thus they produce at MC =MR (marginal cost = marginal revenue).

__Pricing competition__: Sometimes, bookstores give discounts for their consumers (Popular gives 10% discount for their members) and this gives higher incentives for consumers to choose to purchase the same good at lower price at their stores. Furthermore the demand for their products is relatively price elastic; a fall in price will lead to a more than proportionate increase in demand. Thus by giving discount to their regular customers, their total revenue will increase.

__Non-price competition__: Larger firms such as popular and times also engage in non –price competition by marketing their products through advertising their products on magazines (popular have their own popular magazines). In the magazines, they promote books that could be found in their stores. Popular and Times members can also receive discounts in various restaurants if they provide their member cards. As compared to small firms, their regular discount is not very noticeable and not known to a larger group of consumers.

** Performance ** ** 1. Efficiency ** The book store is **__allocatively inefficient__** in both the long and short run. [2] As the diagram illustrates, assuming profit maximisation, there is allocative inefficiency in both the long and short run in the bookstore industry because price is above marginal cost in both cases. There is a tendency for excess capacity for bookstores industry because they can never fully exploit their fixed factors because mass production is difficult for them. This means they are ** __productively inefficient__ ** in both the long and short run.

** 2. Profitability ** We consider the bookstore industry to be an industry with a lot of firms selling heterogeneous good for consumption by a large number of consumers. This brings in the term economics of scale where larger firms enjoy. For instance, firms are able to enjoy cost advantages when they buy books and stationary in bulk from suppliers, and thus lowering their total fixed cost. As they sell larger number of books and stationery, their fixed cost can be spread over a larger number of outputs, thus enable larger firms to enjoy a smaller average cost. As their fixed cost decreases, assuming they are still able to earn the same amount of total revenue, their total profit will increase. Thus, they are more profitable as compared to smaller firms.

By Hubert, Nhi, Tingxuan, Wanting

[1] @http://www.bus.indiana.edu/BEPP/documents/E-CommerceandtheMarketStructureofRetailIndustries.pdf [2] []

=**__COMMENTS: please include your names after you commented!__**=

I think that the evaluation is good, and the flow of thoughts is fluent and clear. (: Headers make the whole report look well-organized and overall, good job! :) -Sofia

The flow is there, points are clearly stated. sufficient research is also done! :) Wynn.

Specific examples of bookstores together with the information on how they are operated are stated which presents a better view regarding the situation of the market structure. Well done! :D - Danica

I think links between examples and the monopolistic competition is good and clear. -Joe Yee