More Perfect Competition evidence from latest Mary Meeker roundup

Posted by on Oct 19, 2011 in economics, internet, marketing | No Comments

The latest Mary Meeker goldmine of stats is out, which you can flick through here on Business Insider.  (HT @graemewood).

One chart in particular grabbed my attention:

 

 

It reminded me of the Perfect Competition stuff I wrote on feeding the puppy about two years back:

“The advances we are making are pushing us further towards ‘perfect competition’, which is increasingly making it hard for companies (especially retail ones) to generate the profits they used to.”

(full post here)

Perfect Competition has several key market characteristics that bring it about:

  • Infinite Buyers/Infinite Sellers – Infinite consumers with
    the willingness and ability to buy the product at a certain price,
    Infinite producers with the willingness and ability to supply the
    product at a certain price.
  • Zero Entry/Exit Barriers – It is relatively easy to enter or exit as a business in a perfectly competitive market.
  • Perfect Information – Prices and quality of products are assumed to be known to all consumers and producers.
  • Transactions are Costless – Buyers and sellers incur no costs in making an exchange.
  • Homogeneous Products – The characteristics of any given market good or service do not vary across suppliers.

In the retail space, the rise of the smartphone is rapidly bringing about a situation where perfect information is available about price & quality of goods in the retail environment…

So although smartphones alone will not bring about classic theoretical perfect competition (where no company is able to make any profit, just enough to keep them going…), it makes it a damn site harder to make decent profits.

So if you’re a retailer facing this problem, what might you do about it?

Play on the other factors, perhaps, and move them to your advantage.  Which strays into behavioural economics, which as always is no bad thing, but it naturally strays into some quite Machiavellian ideas, it seems… (five days being exposed to the cash-rinsing exercise that is Vegas was proof of that).

To wit; three mildly evil ideas for shop owners…


Decrease the feeling of “infinite sellers”

If you’ve got a shelf full of products, people are more likely to think “well, they’re still going to be selling them in half an hour, I can shop around”.  Keep just two of any product on a shelf, and as soon as one goes through a till, have backroom staff replace it when the customer has left.


Create some Exit Barriers

As people enter the store, hand them a voucher for free home delivery/5% off/free fitting (whatever is relevant) that only lasts 30 minutes, and states ‘only one voucher per customer per day’.  Suddenly if they walk across town to another store, the thirty minutes will have lapsed…


Only trade in limited editions

Homogeneity is your enemy; if your competitor offers the same product, here’s nothing to stop people shopping around.  So do whatever you can to make your products unique, individual, and only available on your floor.  Free gifts, special designs, signed editions… what’s the thing you’re offering that’s stopping the customer walking?

 

There’s lots more you can think about, of course, but the list of five perfect competition characteristics is a good place to start looking for inspiration.

If you’re mildly evil, that is.