Wednesday, 11 June 2014
Local Market Power
Bulls Eye department store specializes in the sales of
discounted clothing, shoes, household items, etc. similar to the
offerings at a regular Walmart or Target. Bulls Eye is the only
department store in Show Low and the nearest other discount
retailer is Target, located 49 miles away in Eagar. Bulls Eye,
therefore, has some market power in its local area. Despite having
some market power, Bulls Eye is currently suffering losses. An
analyst at Bulls Eye is recommending to the manager to raise
prices, so that profitability can be improved. The manager is
unsure of this strategy as recent data points to increasing numbers
of individuals shopping more and more. What are the pros and cons
of raising the prices at Bulls Eye and would that strategy be
profitable?
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