The No-Frills Service That’s Delivering More and More Packages

EconEye Admin

1 year ago

The growth of the e-commerce giants like Shein, Amazon, Temu, and TikTok and a large number of smaller firms has spawned a new U.S. delivery service called SpeedX. Parcel carriers FedEx and UPS provide reliable fast shipping and tracking, while SpeedX provides low-cost service that can leave some customers guessing.- Wall Street Journal, December 2, 2024

Answer the following questions to check your understanding of the story.

1) What type of market is parcel delivery? What type of market is e-commerce?

a) Monopoly; perfect competition

b) Oligopoly with product differentiation; monopolistic competition

c) Perfect competition; monopoly

d) Monopolistic competition; oligopoly

Wrong! - Is there a large number of U.S. parcel delivery firms? Does an oligopoly comprise of a large number of small firms?

Do parcel delivery firms offer identical services? Do all e-commerce firms offer identical services?

Only one U.S. parcel delivery firm? How many e-commerce firms operate in the United States?

Good Job! - The presence of a few parcel delivery firms differentiating their services on the basis of delivery speed, coverage of locations, the design of their websites, the layout of their apps and so on, makes the parcel delivery market an oligopoly with product differentiation. A large number of small firms makes the e-commerce market monopolistically competitive.

2) Why did SpeedX enter the market for parcel delivery?

SpeedX entered the parcel market because they can offer a low-price low-cost service with _____________.

a) marginal revenue greater than average total cost

b) the price greater than average total cost

c) marginal revenue greater than marginal cost

d) the price greater than average variable cost

Wrong! - A firm will enter the market if it estimates it can make an economic profit. Does P > AVC guarantee an economic profit? To enter the market, will SpeedX compare MR with MC or MR with ATC? Won’t SpeedX see if it can make an economic profit?

That's Right! - SpeedX entered the market because it estimated that at the price it could offer a competing standard of service would make sufficient total revenue to cover its total cost i.e. it could make an economic profit.

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