All About A Wholesale Company
I have chosen to do this report on Costco Wholesale. What Costco Wholesale does is that it sells the products it receives from the manufacturer, but what makes Costco different from K-Mart, A&P, and other retailers is that Costco is set up as a warehouse. They sell their products in bulk. I happen to work for this company and enjoy it very much. They treat their members as well as employees very well. Costco Wholesale is the number one ranked wholesaler in the world. It competes with such warehouses and places where they charge you to be a member: Sam� and BJ� s s. Out of the four market models I believe that Costco Wholesale represents an oligopoly the best. The reasons why Costco Wholesale is an oligopoly is that it only has a few numbers of firms that it has to compete with. Also the types of products that Costco sells are standardized and differentiated, they sell all kinds of products such as food as well as furniture and everyday necessities. Another reason why Costco is an oligopoly is that the control over price is limited by mutual interdependence. This means that if Costco cuts its prices on its washing detergent then other competing store are going to have to do the same thing just so that they can keep up with Costco. One major problem that Costco had happened six years ago. Six years ago Costco Wholesale was known as Price Club. Price Club did the same thing as Costco and sold the same products. It was just under different management. In 1996 Price Club and Costco merged together and formed the new company Costco Wholesale. Now to get to the problem, the management of Costco Wholesale did not know how the consumers were going to react to this name change even though they sold exactly the same product. After all changing a company� name is very significant. But s after going over that year� sales numbers they finally realized that the name change did s not even matter. As you can see in graph one I graphed the demand curve for the year 1999-2000. The demand curve shifted dramatically to the right in this year, which means that the demand for Costco Wholesale products increased a great deal. People wanted more products. Which brings me to graph number two. In graph number two the supply curve shifted dramatically to the right, which means that the supply for the product were increased. Because the demand for these products increased then the supply for these products must be increased or else the consumers will not shop at Costco. Who would want to shop at a place that did not have what you wanted? In graph number three this shows the changes between supply and demand. The graph shows the different equilibrium points and it also shows that the demand and supply changes for the year 1999-2000. There is an increase from price one to price two and there is an increase from quantity one to quantity two. This is increasing costs. Now to talk a little about normal and superior goods. Normal or superior goods are products whose demand varies directly with money income. Basically, this means that if someone� income increases they would buy more expensive items then what they s usually buy. At Costco we have these goods. Just to give a couple of examples we sell a chandelier that costs 1700 dollars, and we also sell televisions that are around 1000 to 2000 dollars each. Now normally people would not buy such goods with their average income but if they were to get an increased income then they would be able to buy them. Costco Wholesale also carries inferior goods or goods whose demand varies inversely
with money income. This means that if a person� income reduces then they are going g s to have to save money some how. This results in the buying of cheaper goods. Costco carries a brand of clothing called Kirkland. Kirkland brand clothes are a great deal cheaper then say Levi� Now if a person has just received a decrease in his or her s. income maybe he or she would not be able to afford Levi clothes instead they get the Kirkland. A substitute good is defined as one that can be used in place of another. For example, Coke and Pepsi are substitute goods and Costco carries both. Now if Coke were more expensive there most people would buy the Pepsi just because of the price. Complementary goods are goods used together and usually demanded together. Examples are cameras and film. You cannot use a camera without film; they are dependent on one another. Finally, independent goods are not related, such as butter and golf balls they do not depend on each other. Graph number five shows the short-run cost of Costco Wholesale from November to December 1999. In this graph Costco is gaining an economic profit. It is a big economic profit just because this takes place in December, which is one of our busiest months out of the year because of Christmas. Graph number four shows the long-run costs of Costco Wholesale from 1998 to 2001. In the long-run cost Costco is still earning an economic profit although it may not be as great as the short-run graph. The final graph, number six, shows exactly were Costco Wholesale is in the long run average total cost curve. Costco is right in the middle of the curve. It is in the constant returns to scale because it is such a thriving business. In conclusion, the six graphs that I have illustrated as well as the information should give you a good perspective on how Costco Wholesale, the oligopoly, handles its economics. As far as the problem that I have mentioned earlier about the name change, I believe that they have solved it themselves. In my opinion Costco Wholesale is a very good company and will continue to grow throughout the future.