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Competition and firms

Day 2,665, 18:56 • Published in Ireland Ireland

• by Lexone

Question: Why are gas stations, convenience stores, fast food restaurants,etc all bunched up together?

Answer:
1: Gas Stations are perfectly competitive

A new gas station opens up on a busy highway. As it is the only one around, all vehicles fill up at that station. This profit then drives new firms to enter the market. New gas stations enter the market meters away. This is one of the basic principles of long run perfect competition, that is, in perfect competition profit drives firms to enter until (economic) profit is zero.

This follows with the other examples.

2: Firms are able to distinguish their products.

Shopping malls are the perfect example. Different brands nearby allow consumers a variety of options to choose from. And when they can convince a customer to go into their store instead of their competitor, well it's a job well done.

3:Firms are evil.
Stores put themselves next to each other and agree among themselves what to price. For example, a gas station with the lowest price in an area will force other gas stations to follow suit. However, this could work in the opposite direction if the gas stations form an agreement to charge higher prices.

What do you think?
Agree/Disagree, other suggestions,

Comments

Vinaconc Day 2,665, 19:55

Pole

Don Croata Day 2,665, 21:14

As economy student...
its all true!

ChrisJF Day 2,665, 21:30

As for the third one, I'm pretty sure that's illegal, at least in the US.

Releasethe Krakken Day 2,666, 03:08

fair competition laws and boards exist in all countries. go watch the informant! starring matt damon. you cannot fix prizes that is illegal. you can also not operate on 2 levels say as supplier and chain store

Frank Dobbs Day 2,666, 03:22

4. If they have the same supplier they could also negotiate a cheaper delivery rate from the wholesaler.

3a. They don't have to have a formal agreement to fix prices. If they can see each other's prices easily they may try edging their price up a little and allowing the others to look at it and think - I could be improving my profit margin too. Together they are operating as a de facto monopoly.

Releasethe Krakken Day 2,666, 03:33

i would see 4 as good business practise. do you guys understand how expensive delivery is. suppliers commonly use what you describve to curb costs. they will their lorry with gods going in the same basc direction and let each business pay a reduced rate for delivery. i often use this. the people that d not do this makes a normal 1000 dollar delivery and basically force you to by a full load costing up to 6 times more.

Releasethe Krakken Day 2,666, 03:35

*goods not gods . they stock their lorry and once it is 100% full they send it on a certain route. the reduced cost of delivery is then passed onto you the consumer. from my experience this is mostly supplier driven. you pay a percentage on the goods you buy.

Releasethe Krakken Day 2,666, 14:58

also here gas stations close together is mostly because on a freeway a gas station serves a certain direction of traffic and in bigger cities due to high volume of traffic. last year travelled on N1 out of Johannesburg which is a 1 way freeway that covers many suburbs from joburg. its more than orchestrated madness as here we travel about 140 - 200 km on that roads and you have to change tracks quite often to not get thrown out of highway. even with gps it was quite crasy

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