Application of the Law of Market Areas: In the “Masquerade of Monopoly,” Fetter makes a considerable use of the reasoning that underlies his “law” in attacking the use by the steel industry of basing point prices. The method of measurement described above gives only a first approximation of a true market area.
Actual railroad rates do not conform to mileage schedules but are often made to favour long and indirect hauls. The resulting boundary line are far from being smooth curves.
Under competition the structure of the market area is such that operators in a market have an exclusive advantage in the territory adjacent to the market upto the line of indifference.
Often this line becomes a Zone, because of identical freight rates at a number of points at different distances from the respective competing markets. Within this zone, sellers in the competing markets meet on an equality and shippers have complete freedom of choice as to which market to prefer. Beyond this zone, in the direction of market B, market A is at a disadvantage ; likewise market B, in the direction of market A.
Is The Wholesale Link Necessary
It is frequently contented that the functions of the wholesale could be dispensed with and that the producer and retailer could between them perform the duties of the middlemen. Hence, some think that the future of wholesaler is not very bright. The new technique followed by manufacturing concerns in the matter of the distribution of their products tends to show a tendency for the elimination of the wholesaler from the channel of distribution.
The appointment by manufacturers of their own travelling salesmen, sole agents and the establishment of their own retail stores and distributing centres in different parts of the country to contact the consumers directly in the first case and retailers in the second case, also has strengthened this belief. But can he he really eliminated ?
In the absence of the wholesaler, the manufacturers will face the following difficulties:
(a) Formulating policies regarding the manufacture of goods;
(b) To consume energy and money in creating and expanding markets ;
(c) To bear the risk of price fluctuations ;
(d) To divert their attention to production and
(c) To hold large stocks to distribution at the same time ; meet unknown demand and thus locking up the capital ;
(f) Non-economy in cost of production due to the absence of “Released-capital”, and
(g) To maintain their own sales organization with experienced staff.
Similarly, the retailers in the absence of the wholesaler would face the following dfficulties :
(a) To hold large stocks of a variety of goods to meet unknown demand and thus locking up the capital ;
(b) Avoidance of waste of goods is not possible ;
(c) Cannot procure the best quality goods at favourable price ;
(d) Will weaken the financial backbone ;
(e) To assemble goods from large number of widely scattered manufacturers ;
(f) To make necessary arrangement for the carriage, packing and grading of the goods, and
(g) To bear the risk of price fluctuations and to forecast changes in fashion.
Thus, all these facts in the majority of cases are enough to justify its existence or its elimination. When we speak of the elimination of the wholesaler, do we mean the elimination of his services or the elimination of the wholesaler himself as a separate entity ‘? His services may be eliminated if they are found to be redundant.
But from our above discussion, we find that his services are essential from the point of view of the manufacturers, retailers and the modern marketing management science. As these services are absolutely essential, then is it not better that they be performed by one who can perform these services cheaply and efficiently too ? And surely, the wholesaler is the rightest man to do this.
Of course, empirical data demonstrate that in the USA wholesaler is becoming less important gradually as a result of the high growth of retail-owned co-operative wholesale houses, chain store warehouses, the departmental stores’ wholesale operations, manufacturers’ branch-house system etc.
Thus whether it is proper and profitible to eliminate the wholesaler, and for producers and retailers to deal directly with one another, it is a matter which needs different treatment in different particular case.