Question

An article in the New Yorker noted, "The Bronx [borough of New York City] is home to 1.5 million people, two hundred thousand public-school students, eleven colleges and universities, and a single general-interest bookstore a Barnes \& Noble, located in the Bay Plaza shopping center." The article also noted that this bookstore closed at the end of 2016 . Would the only bookstore in the Bronx, or any other city, be considered a monopoly? If so, why would it have closed?

Short answer

No, the Barnes & Noble bookstore in the Bronx would not be considered a monopoly despite it being the only general-interest bookstore in that area. This is because there are close substitutes available for the services it provides including e-books, online bookstores, and libraries. It might have closed due to factors like the rise of online shopping, preference for digital reading materials or other alternative sources of obtaining books.

Step-by-step solution

Understand the concept of monopoly

A monopoly is a market structure characterized by a single seller, selling a unique product in the market. In a monopoly market, the seller faces no competition, as he is the sole seller of goods with no close substitute.

Consider the Barnes & Noble situation in the Bronx

Here, Barnes & Noble was the only general-interest bookstore in the Bronx. However, despite being the only bookstore, it wouldn't be considered a monopoly. The reason is that a monopoly exists when there are no close substitutes for a product or service. But in the case of a bookstore, there are close substitutes available. For example, e-books, online bookstores, and libraries.

Explain why it closed

As for why Barnes & Noble, which practically enjoyed regional exclusivity, closed down can be attributed to many reasons. One of the major reasons could be the rise of digital retailers and e-books. Physical bookstores have expenses like rent and staff salaries, which makes them less competitive with online stores. Another reason could be that residents of the Bronx might prefer buying books from places other than the bookstore, like convenience stores or preferring online shopping.

Key concepts

Market Structure

Market structure refers to the organization and characteristics of a market, specifically how firms and competitors are arranged in it. In economics, market structures are important because they determine the pricing and output of products. There are several types of market structures:

• Perfect Competition: Many sellers with identical products, like agricultural markets.
• Monopolistic Competition: Many sellers with differentiated products, like clothing brands.
• Oligopoly: A few large sellers dominate the market, such as car manufacturers.
• Monopoly: A single firm that controls the entire market, with no close substitutes, like a local utility company.

Understanding which structure a market falls into helps explain business strategies and consumer choices. In the Bronx bookstore scenario, determining market structure helps us explore why Barnes & Noble, despite being the only bookstore, wasn't the sole choice for book lovers.

Close Substitutes

Close substitutes are alternative products or services that consumers can easily switch to if a particular product is unavailable or priced too high. In markets where close substitutes exist, consumers hold more power, as they aren't tied to a single seller. For example, if only one coffee shop is available but vending machines offer similar quality coffee cheaper, the vending machines act as close substitutes.
In the case of Barnes & Noble in the Bronx, even though it was the only physical bookstore, it faced strong competition from various close substitutes:

• E-books: People can read books on their electronic devices, often at a lower price.
• Online Bookstores: Retailers like Amazon offer vast selections delivered to your door.
• Libraries: Allow people to borrow books free of charge.

These substitutes undermine the monopoly power of any single bookstore, contributing to Barnes & Noble's decision to close.

Digital Retailers

Digital retailers are online platforms that sell products and services directly to consumers via the internet. Over the past few decades, they have revolutionized the way people shop, altering traditional market dynamics significantly. For books, major digital retailers include platforms like Amazon, which provide vast book selections, often at lower prices than physical stores.
Advantages of digital retailers include:

• Convenience: Immediate access to a wide range of products from the comfort of your home.
• Cost-effective: Lower operational costs, allowing them to offer competitive pricing.
• Accessibility: Available 24/7, serving customers worldwide without geographical limitations.

In areas like the Bronx, the shift towards digital retailing has influenced consumer behavior significantly, drawing customers away from local shops like Barnes & Noble.

Physical Bookstores

Physical bookstores are traditional brick-and-mortar stores where books are sold directly to customers. They play a cultural and social role, offering spaces for book enthusiasts to gather, explore, and enjoy literature.
Challenges faced by physical bookstores include:

• High Operating Costs: Expenses like rent and salaries increase financial pressure.
• Competition with Digital Retailers: Digital stores offer wider selections and often lower prices.
• Changing Consumer Preferences: Readers may prefer digital over physical copies due to convenience.

Despite these challenges, physical bookstores often strive to differentiate themselves by creating memorable in-store experiences and hosting community-building events. However, in highly competitive areas or small communities like the Bronx, sustaining a physical bookstore is increasingly challenging without a unique niche or loyal customer base.