Question

Why is there a huge price difference on brand new textbooks being purchased at your local College Bookstore compared to buying brand new on Amazon? Include barriers to entry, elasticity of demand,and economies of scale in your answer.

Answer 1

The big price difference in the college book store and Amazon is because of multiple factor first of which is the economies of scale where Amazon on one hand have significant volumes and hence lower average variable cost while the same might not be true for the local book store hence Amazon can lower the prices in account of efficiencies, also on elasticity of demand since the demand will be more elastic for Amazon as the student will prefer to buy instantaneously from local store if amazon charge higher prices hence it makes more sense for Amazon to price lower which increases volume offsetting more than the loss because of lower prices vice versa is true for local book stores. In terms of barrier to entry, ecommerce have significantly low barrier to entry hence Amazon needs to be price cautious to deter the new entrants whereas the local book store sort of have the mkonopoly in the physical space in particular locality