From Example 1.2 in the textbook, Pindyck and Rubinfeld distinguish between the mass market and dealer market for bicycles. Although there are many dealers in the U.S. and only a few mass merchandisers, we should expect the dealer market to be somewhat less competitive than the mass market. Why?
A) Due to their differences in quality and performance, dealer bicycles are not close substitutes.
B) The geographic extent of the market for dealer bicycles is typically small, so the individual sellers do not have many local competitors.
C) Dealers are small sellers and have little control over bicycle prices.
D) A and B are correct.
E) B and C are correct.

Question

Quizplus · Accepted Answer

A) Dealer bicycles often differ significantly in quality and performance, making them less directly comparable and substitutable. B) The dealer market is usually localized, limiting the number of competitors within a given area. These factors contribute to a less competitive environment compared to the mass market, where products are more standardized and the market is broader.