Mary: This is Mary Walden with economist MW, welcoming you to the economic perspective. Today’s program looks at competition from a new firm. Mike, economists have concluded that competition is good for buyers but tough for sellers. So when a new firm comes to town, buyers likely should clap but existing businesses should get ready to react. How do these impacts usually play out?
Mike: Summary Answer
- Let’s use the grocery store market as an example
- Research has shown that the entry of a new grocery store to a local market does result in lower prices for consumers, about in the 4 to 6% range
- However, since the average consumer travels only about 4 miles to purchase their groceries, the impact is highly localized, only impacting firms within about a 2 mile radius
- However, on-line buying and home delivery may change these conclusions
- Some grocery chains are trying to expand their delivery services
- If this happens, could increase the geographic size of impact
- Also, in long run more competition could mean some bankruptcies, ultimately resulting in less competition
- But at least initially, more competition is a plus for the buyer
- I’m MW
Mary: And I’m Mary Walden for N C State Extension.