Question

Bulls Eye department store specializes in the sales of discounted clothing, shoes, household items, etc. similar to the offerings at a regular Walmart or Target. Bulls Eye is the only department store in Show Low and the nearest other discount retailer is Target, located 49 miles away in Eagar. Bulls Eye, therefore, has some market power in its local area. Despite having some market power, Bulls Eye is currently suffering losses. An analyst at Bulls Eye is recommending to the manager to raise prices, so that profitability can be improved. The manager is unsure of this strategy as recent data points to increasing numbers of individuals shopping more and more. What are the pros and cons of raising the prices at Bulls Eye and would that strategy be profitable?

Answer 1

The pros and cons of raising the prices by Bulls Eye are -

Pros-

• By raising the price Bulls eye can increase its revenue
• It will also be able to recover the loss incurred in the past
• Since it has some market power so raising the price will increase its profit.

Cons -

• Though it has some market power but also raising price will cause at least some loss of its customers and hence revenue but less as compared to increase.
• Higher price will be disadvantageous to customers.

I think the strategy of raising prices will be profitable to Bulls eye as it is mentioned that it is the only department store in town and hence it has some market power. So raising prices will not cause a loss of large number of customers as they have no other options. So if they increase price their revenue and hence profit will increase.