Brief: Cannibalisation

Cannibalisation occurs when a company reduces the sales of one of its products by introducing a similar, competing product in the same market.
Igami and Yang study this phenomenon in relation to burger outlets, pointing out that entry of new outlets harms the profitability of existing stores (cannibalisation) but that this occurs so as to preempt the threat of rivals’ entry: i.e. a firm may have an incentive to cannibalise its market share if it thinks this will keep rivals out (by saturating the market and depriving it of store locations).
One of their main findings is that “shops of the same chains compete more intensely with each other than with shops of different chains, which implies cannibalization is one of the most important considerations for the firms’ entry decisions”. [...]

Everyday Economics – Why are consumer prices generally higher in urban areas than in rural areas?

In condensed urban areas there are many (potential) consumers and many firms operating to produce and sell to these consumers. The retail industry could be seen as operating between perfect competition and monopolistic competition, most retail establishments (including corner shops and the larger chains who sell branded goods; not including own brands) sell homogeneous goods and don’t usually have monopolies (however shop locations can be seen as effective local monopolies, as areas may be restricted as to the number of shops they can have). Therefore we would expect strong competition in this market and hence the driving down of prices for consumers. [...]

Everyday Economics – ‘As seen on TV’

Why do firms label their products to say they have been advertised on TV when this information may seem irrelevant and doesn’t appear to convey a message to the consumer about the quality or function of the good?

Well in fact, such a practise, does convey a message to consumers. At least about the quality. To advertise on TV firms have to spend thousands if not millions of pounds to secure an advert slot. To spend this much money on promoting and marketing a product it shows that the producers are confident that the product will sell well, and to do this it must be worthwhile and of a high quality. [...]

Everyday Economics

Economics is universal and surrounds our daily life, in practise it can be used to answer a wide range of questions that arise from daily life. No, this introduction isn’t a response to a University Interview question asking what economics is, but instead is an introduction to a new feature we are introducing – Everyday Economics.
This feature aims to answer a variety of different puzzles that can be found in daily life and answered by economic theory.

When confronted with a reality puzzle there are a number of economic tools we can use to try and solve the question. Some of these tools (of which you can learn more of the theory on, in our Lessons Page) are listed below, in no particular order:

1. [...]