Problem 1:

Like supermarkets, full-service department stores like Macy's are generally in decline. What factors might these types of stores have in common behind their declines? How would you determine which were important and which were not?

Answer: Supermarkets that dominated grocery retailing in the twentieth century are losing their customers in the twenty-first. Between 1920 and 1970s, supermarkets innovated to win customers from small retailers with few locations and smaller inventories, often known (inaccurately) as "mom and pop" stores. Improved highways and cheap refrigeration lowered their cost of managing centralized distribution networks. The industry structure also changed as the chains eliminated intermediaries who repackaged goods into small lots for resale to small stores. Supermarkets thrived with the growth of the suburbs, bringing variety and convenient hours to customers whose time had grown in value. Competition also took the form of service offerings. Customers no longer had to wait for clerks to reach for items on shelves after clearance Saunders initiated self-service at his Memphis Piggly Wiggly store in 1916. Other stores in the chain introduced the checkout stand.

Management of chains large and small are searching for strategies to restore their former dominance. c

Problem 2

A. Verify all the prices and quantities calculated in the discussion.

B. Now assume that intermediaries come from a competitive market with and equilibrium price of $8 per unit for their services, that is, any buyer or seller who wants an intermediary's services must pay $8 for them. What is the maximum per unit that sellers are willing to pay intermediaries if hiring them saves buyers $8 in transaction costs?

c. Does your answer to Question 16a change if buyers pay $8 per unit to the intermediary but sellers offer to rebate part of that expense to buyers?