This assignment’s learning objectives (MLO) are:
MLO13.1: List the characteristics of monopolistic competition.
MLO13.3: Explain why monopolistic competition delivers neither productive nor allocative efficiency.
MLO13.4: Describe the characteristics of oligopoly.
MLO13.5: Discuss how game theory relates to oligopoly.
The Costco Craze
Costco is an amazing retail success. Since opening its first store in Seattle in 1983, it has grown to a worldwide giant that has turned retailing on its head. Here’s a brief description of some of the characteristics of Costco (taken from Wikipedia, which may be the Costco of online references…):
Costco focuses on selling products at low prices, often at very high volume. These goods are usually bulk-packaged and marketed primarily to large families and businesses. Furthermore, Costco does not carry multiple brands or varieties where the item is essentially the same except when it has a house brand to sell, typically under the Kirkland Signature label. This results in a high volume of sales from a single vendor, allowing further reductions in price, and reducing marketing costs. If Costco management feels the wholesale price of a product is too high, they will refuse to stock the product. For example, on November 16, 2009, Costco announced that it would stop selling Coca-Cola products because the soft-drink maker refused to lower its wholesale prices. Costco resumed selling Coca-Cola products on December 14, 2009.Costco also saves money by not stocking extra bags or packing materials; to carry out their goods, customers must bring their own bags or use the merchandise shipping boxes from the company’s outside vendors.
Lighting costs are reduced on sunny days, as most Costco locations have several skylights. During the day, electronic light meters measure how much light is coming in the skylights and turn off an appropriate percentage of the interior lights. During a typical sunny day, it is very common for the center section of the warehouse to have no interior lights powered on.
Most products are delivered to the warehouse on shipping pallets and these pallets are used to display products for sale on the warehouse floor. This contrasts with retail stores that break down pallets and stock individual products on shelves. Costco limits its price markup on items to 15%
Costco is known for treating its employees well. (Craig Jelinek , Costco CEO got a lot of publicity after recommending that the nation should raise the minimum wage to $10.10/hr.) It offers them health insurance, good pay, and a chance for advancement. Yet, it still makes more than $10,000 in profit from each employee as compared to $7,400 in profit per worker for WalMart.
This video explores why Costco is so successfu.
answer the following questions (at least 1-2 paragraphs for each question):
How does Costco differ from other retailers?
Why doesn’t Costco advertise?
Why does Costco keep the price of its hot dogs and other fast food so low? How does it do it?
Does it pay to be a Costco member? How would an economist calculate the cost of membership?
Why does Costco charge a membership fee?
Which type of industry structure does Costco fall under? (perfect competition, monopoly, monopolistic competition or oligopoly? Explain.
Read more about Costco below: