Snip Avenue

Note: i swear i did this b4 i saw mr tan's e-mail.

Refering to today's article on the Home section, "Forget JB - all head for a snip at Snip Avenue", I am once again reminded how practical and useful economics is in understanding the world around us, and would like to horne my skills by providing some insights on the issue, looking beyond what the layman would understand from the article. It is deeply regretable that I could not publish the article here due to copyright issues. There are many concepts that come to mind while look at the article. Here are my thoughts, pardon me if they seem jumbled.

In short, the article showcases "a new kid on the block" offering below normal prices for haircuts, that of $2.80, putting many other barbers out of business and apparently still floating.

Through this article we understand that the haircut industry is not perfectly competitive market. Even though there are many small buyers and sellers of this particular service (one facet of perfect competition), there apparently is incentive for a firm in this industry to lower its price, showing us that this firm does not experience what a normal PC firm's demand curve, i.e. not perfectly elastic.

If one were to look at the article on the surface, one may reason that the low price is due to a lower quality of service provided. Taking into account income elasticity, we can look at the situation this way: this salon is quick to respond to market sentiments, that of a looming recession, and thus changed the quality of goods which he would like to provide, and hence attract more people who wish to pamper themselves with a haircut but of an inferior kind.

Nevertheless, apparently, they provide very good haircuts, with one polytechnic student reportedly "emerging from the shop sporting the layered look he asked for 'like the singers in 5566'". So at one hand, they offer better service at lower price. How do we account for this?

Taking into account ceteris paribus and equal cost conditions for all salons, we see that although this new salon may not experience that much revenue from the haircut market, the demand curve for the perms and highlights (complementary goods) market does shift to the right, which is how this new firm earns money. The owner of the shop implies that this is the kind of customer that he wants in the article.

Also, the LRAC for this salon continues to fall as output expands over a wide range because according to the owner, "the mass volume can cover the cost". A case for natural monopoly?

Any comments on this possibly disastrous analysis of the article?
Cheers for this last week of school. We have only one and a half years left. Cherish and have fun.

David.