Wednesday, March 2, 2011

Is the Internet changing the free market?

For those not subscribing to Bowlers Journal, the February 2011 issue featured an article concerning changes that Ebonite is implementing in selling its bowling balls to web based retailers.

How does that affect us, the common consumer? Those great discounts some web shoppers were getting may be gone. Some large Internet based pro shop retailers were selling Ebonite products for less than your local pro shop could purchase the same ball. It may not be a short term problem for the consumer as you could find great deals on the Internet. It does lead to a long term problem as less pro shops can make a profit to survive. It also leads to a long term problem for Ebonite if the retail value of their merchandise is artificially devalued. While the Internet retailers slowly grow market share, it comes to the expense of one of their product suppliers. If Ebonite cannot make as much money creating the product, there will be less choices in the market place and less product to sell. Less supply creates higher prices.

This is not a problem exclusive to the bowling ball industry. The article mentions other industries changing its resale policy. Ebonite is now treating the top three retailers as a 'national house account' similar to how Ebonite treats Kmart and Dick's Sporting Goods. There is no longer a distributor or middleman involved between manufacturer and retailer. Ebonite sells directly to these retailers and subjects them to its pricing policies. Ebonite imposes a minimum suggested retail price for its products.

The article mentioned a similar situation with airlines and dropping certain travel web sites from ticket booking web sites. I have also noticed the Internet retail boom affecting running shoe prices and supply. As an avid runner, I usually buy a new pair of running shoes every six months. I would always purchase 'last year's model' of shoe from running shoe web sites. They were always on clearance price. A $100 pair of quality running shoes could be purchased for $40. I did this for two or three years. As I mentioned how Ebonite was worried about their products being devalued in the market, running shoes were not a $100 product to me. Running shoes were worth no more than $40. The running shoe industry fixed this problem a different way. They didn't flood the market with too much product. Then, six to eight months later, they come out with the latest 'improved' new model, and once again, flood the market with product. Thus, retailers were stuck with a large inventory of 'old' product which they sold at wholesale price or lower.

While your favorite pro shop still exists, pick up the February issue of Bowlers Journal and read this article. Steep discounts with bowling balls bought on the Internet may be coming to an end. My favorite running shoe manufacturer now makes only enough product to supply the demand for its maximum value price. This is the first law of economics. Now, I cannot get running shoes for $40. My short term loss for great deals may be a long term victory to keep my favorite running shoe manufacturer viable.