Just wondering if there are any case studies of the following situation:
Some industry is being serviced by a small number of businesses, in a standard oligopoly set up.
For whatever reason, there is an overall drop in demand for the services provided by these companies. As a result, all companies start operating at a loss.
All companies know that if they can just hold out long enough for one competing company to collapse, the flood of “new” customers that will be created should be enough to stabilise their balance sheets.
Small Service businesses are probably the most dramatic examples of this. Cleaning services, computer shops, dry cleaners, hvac and appliance repair types.
This happens all the time. In fact right now in my biz (computers) we have an interesting phenomenon. Several shops folded, and many larger operations laid people off. Many of these were farly experienced people. They started hanging out little shingles all over magnifying the war of attrition problems for larger shops. Since they are working from home, overhead is minimal, allowing them to stay in biz on revenues that would barely pay the rent at my shop.
It’s happening right now in the newspaper publishing industry. Let’s say thirty small-town newspapers are printed at five or six printing facilities, and each printing facility is owned by one of the newspapers it prints.
When one of the owner newspapers folds, another will buy the printing facility. When one of the printing facilities folds or is shut down, the paper that owns it farms its printing needs out to a former rival. Sometimes both the publishing and printing arms fold simultaneously, sending the commercial clients to one of the remaining print shops.
Here in the DC area, the Washington Post owns about six printing facilities. Two of them print editions of the Post, the other four print ad inserts and special sections as well as a variety of small local papers, school papers, trade and military monthlies, etc.
The Washington Times owns its own printing facility, which has a number of commercial clients, but has been losing employees through layoffs and attrition for over half its history. The Washington Examiner had a printing facility, but closed it down to print cheaper at a different shop it doesn’t own in Frederick County, MD. Every time a print shop closes, its remaining competitors pick up the commercial client papers and the Grim Reaper is once more held at arm’s length; but the dearth of remaining print facilities makes it more expensive for each client, forcing more of them out of business–to the marginal benefit of their former competitors.
The Times and Examiner are money-losing propositions that continue to exist because their respective owners (Rev. Sun Myung Moon and Philip Anschutz) like to consider themselves Washington players and power brokers, but the sad truth is, we’re a one paper town and they aren’t it.
Car dealerships are partly doing this right now. The dealerships that make it pick up sales that might have gone elsewhere. Eventually, the economy will bring demand back up, but it’s anyone’s guess when that will be.
It’s sad to say this, but it’s been happening in the performing arts as well. In my neck of the woods, we had four major performing arts venues within about a half hour of each other. The economy being what it is, people have less money to see plays and such. So the venues operated by larger marketing companies held out long enough for the independent theater to fold… and now two large companies get all the traffic instead of four.
Probably the aspect of this that doesn’t get publicized and in little understood is the service aspect. Car dealers don’t make all of their money on the sale of new cars. They can break even on the sale of new cars and make money in their used cars and service departments. Reduce the number of competitors and it becomes much easier to make profits. Especially when it comes to warranty service, reducing the number of dealers can make the surviving dealers much more profitable. Note that recalls are a drag on the manufacturer but can be profitable for the dealer. The customer brings the car in as the result of a recall, the manufacturer reimburses the dealer, and meanwhile the customer has other service done at a profit to the dealer.
Somewhere somebody still makes whaling ships and somebody still makes kerosene lamps, but not as many somebodys as there used to be.
Some businesses fade away, some quickly go kaput. The Pony Express closed within days of the first cross-country telegraph line being finished.
If government had subsidized businesses when there was little or no demand for their products or services we could still have full fleets of sailing whaling ships and who knows how many buggy whip factories.
Classic example is the ‘hog cycle’. If you can avoid going out of business longer than the farm down the road when times are tough, you will profit handsomely. The whole industry is on the nasty end of the cycle as we speak. ‘Last man standing’ can be brutal, but it does result in survival of the fittest.
Same thing happening now to ad agencies. Lots of the little mom and pop shops lost the two or three car dealer clients that kept them going. Now they are laying off staff and trying to make it on brochures for the “Cleaning services, computer shops, dry cleaners, hvac and appliance repair types.” I received three resumes from Art Directors with solid, lengthy employment in the past week. Lots of great car dealer ad makers out there looking for work right now. Oh, and the radio/TV/newspaper sales rep numbers have been cut in half over the past year or two. Plenty of people who can literally sell air out on the streets.
I’m surprised this thread got to a dozen posts without anyone using the word “obsolete”.
Whenever a product or service is not longer needed, or goes out of fashion, that’s exactly the sort of thing that happens.
Another example is postal services – so many people are sending email and paying bills on-line, that the US Mail is taking a real beating. Oh yeah – with junk mail morphing into spam, the Postal Service is losing their business too. I think the first wave of this began in the 1990’s, when people started faxing things that would have been sent FedEx overnight in the 80’s.