NC State Ag Economist Dr. Mike Walden – “Competition from a New Firm”


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

  1. Let’s use the grocery store market as an example
  2. 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
  3. 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
  4. However, on-line buying and home delivery may change these conclusions
  5. Some grocery chains are trying to expand their delivery services
  6. If this happens, could increase the geographic size of impact
  7. Also, in long run more competition could mean some bankruptcies, ultimately resulting in less competition
  8. But at least initially, more competition is a plus for the buyer
  9. I’m MW

Mary:  And I’m Mary Walden for N C State Extension.