Will online gigants, with the ability to exploit economies of scale, kill the high street in the next 20 years? Discuss using examples.
Your son has told you that he wants the new PlayStation game for Santa but you've gone to every single shop in your town and it's sold out. What can you do? Just go on the internet and you will find it for a cheaper price and in 3 days it will be on your door.
Shopping online is acquiring within time a huge popularity and demand compared to high street but why does this happen?
Online gigants are able to offer lower prices compared to the high street and this makes it more attractive to consumers. This is archived because big firms have EOS (Economies of Scale) these help the firms reduce average costs. There are different types of EOS and by the combination of all of them firms can archive these low prices: Managerial: Big firms attract efficient workers which permits an increase in production in a reduced amount of time compared to the high street shops. For example, as we saw in the video the people that are packing in amazon.com might take 1 min to pack one product while in a smaller shop they might take 5 min. This means that in the time that the normal worker takes to pack one, the worker in Amazon has packed 5. Financial: Normally big firms have more facilities to borrow money from the bank because they have less risk than small firms, this means that this first firms can benefit from lower interest rates that definitely reduces the production cost. For example, it would be easier for Mediamarkt to get money borrowed from the bank than a stationary on the street because banks certainly know that they are going to receive the money back from Mediamarkt while they are not so sure about the stationary. Technical: Large firms have most of the times the latest technological advances that permits a higher production in less time, this is a type of investment that small firms are most probably not able to afford and...
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