The Multifaceted Issue of the Bankruptcy of the RadioShack Company

The Extinction of RadioShack

While it was once an iconic company, and a cornerstone of the electronics market, RadioShack today is mentioned almost exclusively when discussing irrelevant or failing businesses. Though the bankruptcy of RadioShack is a multifaceted issue, one principal cause of its downfall was the company’s failure to innovate the thirstiness model to cooperate with new products and change consumer preferences.

Though RadioShack found some success, or at least a lifeline, in mobile phone sales after the electronics market it originally occupied faded away, it would appear everything changed once Apple’s iPhone was released.

Whereas other cell phones were cheap enough at wholesale to allow RadioShack to sell where P > ATC, the new Apple products were so expensive for the retailer to purchase that price presumably got either close to or even less than their average total cost. Furthermore, as simply a retailer, rather than a producer, it would seem that Radio Shack would have very little monopolistic power available to safely raise prices.

Since Radio Shack occupies a monopolistically competitive industry, it only has monopoly power so long as customers are still willing to choose its business/brand over another. With so many other competing stores selling the same product, iPhones, in this case, any differentiation to be enacted and capitalized upon would have to be with the stores themselves, or perhaps the customer service experience, but any changes to either of those things would have to be quite substantial and impressive to convince consumers to pay more for an identical product.

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 Therefore, with little-if-any true control over product pricing, and a declining profit due to increased average total costs of products, RadioShack was left with something like a rigid ceiling and a rising floor.

Something touched upon in the article, but not discussed as much as I’d like to, is what role the internet played in RadioShack’s demise. To begin, what I, and many people, would see as the heyday of Radio Shack, is about 1982, long before the internet would come into existence, especially as a mass consumer market. At that time, and perhaps, even more, a bit earlier, RadioShack was in almost a monopolistic position, carrying consumer electronics, computer components for hobbyists, and other gadgets before many other stores hitched onto the trend, and in a way that was right for the time. Later, once stores like Best Buy, Circuit City, and even nondedicated stores like Target and Walmart entered the electronics market in a big way, it found itself firmly in a monopolistically competitive market structure, as mentioned earlier. While that alone was enough to cause RadioShack to begin to falter, the emergence of the internet as a venue for consumers to shop was just too much. E-commerce promotes possibly as close a thing to pure competition as possible, particularly for the sort of products RadioShack was once known best for. Things like cables, adapters, electronic components, and other simple accessories can be produced, bought, and sold easily by just about any company, often with nothing but price competition. Of course, there are branded accessories produced and advertised by recognizable, monopolistically competitive firms, but on eBay alone, literally, tens of thousands of different sellers offer up identical, generically-branded cables and accessories for mere cents. This is because selling items online requires very little, if any, startup costs, so there are almost no barriers to market entry. Some consumers are sure to remain swayed to purchase these items from retailers like Radio Shack, due presumably to successful results of differentiated advertising, but too many others either (depending on opinion) fail to see or are not convinced by, the advertised upsides of certain brands of accessories. To many consumers, an auxiliary cable is just an auxiliary cable. Whereas companies like RadioShack are wont to rely on differentiation to compete with rivals, they aren’t prepared to engage in the level of price competition that a near purely competitive market like the internet allows for.