Feb 14, 2020
23andMe is a firm that supplies direct-to-consumer DNA analysis. To discover your genetic roots, all you do is mail them a saliva sample and they send your ancestry report. Many people want to know their roots, and advances in technology make the services provided by firms like 23andMe easily accessible and very popular. But CNN reports that privacy concerns and fear of an economic downturn have decreased the demand for this service. And with the decrease in demand, 23andMe is slashing its workforce.
In what type of market does 23andMe compete?
If you decide to have your DNA analyzed, you can choose from dozens of firms. You buy the firm’s test kit and provide it with a saliva sample. Using a DNA sequencing machine, the firm extracts your ancestry information and provides the results. The test kit from one firm is almost identical to the test kit from another firm.
23andMe started in 2006 but since that year, many firms have entered the market and in 2019 there were more than 30 firms providing almost identical services for a similar price. So today, the market for DNA analysis is competitive and we will assume it to be perfectly competitive.
What’s happening in the market for direct-to-consumer genetic analysis?
When 23andMe started up, it made an economic profit, so new firms entered the market. As more people discovered the availability of DNA analysis, the demand for it increased. More firms entered the market, but with growing demand, the firms continued to make an economic profit.
But in 2019, the demand for DNA analysis decreased, and for two reasons:
- People are increasingly concerned about their DNA results being shared without their consent, which is lowering the perceived benefit of this service.
- People fear an economic downturn. Finding your roots isn’t a necessity so with economic uncertainty, people are deciding to not spend money on DNA analysis. DNA analysis is a normal good.
With the decrease in demand, the price has fallen.
How does the decrease in demand influence 23andMe?
Like every firm, 23andMe’s goal is to maximize economic profit. It produces the quantity of DNA analysis at which marginal revenue equals marginal cost. But in a perfectly competitive market, 23andMe is a price taker, so its marginal revenue equals the market price. Why? When 23andMe sells one more test kit, it’s revenue increases by an amount equal to the market price of a kit.
When the demand for kits decreases, the market price falls, and 23andMe’s marginal revenue decreases. 23andMe moves down along its marginal cost curve, decreases production, and cuts its workforce.
Let’s look at the graph.
Now take this short quiz to check that you understand what you have just read.
Multiple Choice Quiz—DNA Testing