Local Market Power Bulls Eye department store specializes in the sales of discounted clothing,...

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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...

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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?
Guided Response: Consider demand elasticity and market structure in your response. How is increasing of the price going to impact the company’s revenues given its demand elasticity? In 300 words or more, please, provide your response to the above discussion questions.

Answered Same Day May 27, 2021

Dr. Smita · Accepted Answer

Bull’s Eye Departmental Store
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Bull’s Eye Departmental Store		[Type the document subtitle]		[Pick the date]		HP	
Bull’s Eye Case Study
Bull's Eye Departmental Store is clearly a case of Monopolistic Competition. There are other sellers (and the ones with the good brand name and international market presence like Walmart) in the same category of products they are dealing in but the differentiation or advantage remains in the fact that they are the only departmental store in Show Low. This clearly gives them bargaining power. The profit maximization condition of the firm operating in the monopolistic competitive industry is MC=MR. In case, they are making losses it is clearly evident that their revenues are insufficient to meet up their cost structure. Hence, any conditioned economist would suggest a price rise to cover up their losses and increase their profitability. Secondly, they are dealing in a wide variety of products like clothing, food items, and shoes and so on. When they are going on for price increase, they should ensure that the prices of only those goods are increased which forms a major part of consumers purchase and daily consumption basket so that they are unable to postpone or change their purchase decisions. In a more economic way, it can be stated that the price of only those goods should be increased whose price elasticity of demand is inelastic. As per the economic theory of price elasticity, the revenues of the firm increases with the increase in prices when the demand for goods in sticky or inelastic.
The recommendation for Bull’s Eye Departmental store can take the following steps to increase their profit margins and lower down their losses.
1. Identify the goods that the consumer is purchasing on a regular basis and try to observe and take down their consumption pattern.
2. The goods that are in bulk purchases and regular consumption can be considered for the price increase. At the same time to attract and retain consumers offers on annual, recurring and bulk purchases can be given.
The price increase initially should be nominal along with good shopping and after sales experience and accordingly, the future course of action could be decided.
References:
Markham, J.W.. (1965). Market Structure, Business Conduct, and Innovation. American Economic Review. 55. 323-332.

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...

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