February 13, 2020
Vera Bradley is a U.S. producer of bags, luggage, and accessories. Founded in 1982, the firm is well known for its paisley-inspired designs. Once popular among younger women, today Vera Bradley’s customer base is predominantly women aged 40-to-60. CNN reports that Vera Bradley is attempting to lure back younger customers by introducing a new line of bags made with sustainable fabrics.
In what type of market does Vera Bradley compete?
When you want to buy a bag or a backpack you have many choices. Hundreds of firms produce bags and every firm produces a bag that is slightly different from its competitors. You can find all qualities of bags, and the prices range from a few dollars at Walmart to thousands of dollars at Louis Vuitton. Open a magazine or watch a YouTube video and you’ll find advertisements for bags.
And if you want to start a firm that produces bags, you can easily do so. There are no barriers to prevent you from entering the market.
These market characteristics tell us that the market type in which Vera Bradley operates is monopolistic competition.
What’s the situation before Vera Bradley introduces the new line of bags?
Like every firm, Vera Bradley’s goal is to maximize economic profit. It produces the quantity of bags at which marginal revenue equals marginal cost and charges the maximum price that its customers are willing to pay. But as its paisley-inspired designs have become less popular, the demand for Vera Bradley’s bags has decreased. And with the decrease in demand, the price has fallen, and the quantity of bags bought and sold has decreased. Vera Bradley’s economic profit has decreased (and may have become an economic loss).
What does Vera Bradley hope will happen with the introduction of the new line of bags?
Vera Bradley is hoping that the introduction of the new line of sustainable-fabric bags appeals to the large number of environment-conscious younger women and increases the demand for its bags. With an increase in demand, the quantity at which marginal cost equals marginal revenue increases, the price of a bag rises, and economic profit increases.
Let’s look at the graphs.
Now take this short quiz to check that you understand what you have just read.
Multiple Choice Quiz—Vera Bradley