Table of Contents
Changing Market Conditions
Effect of COVID-19
Economic activities do not operate in a vacuum; they affect and are affected by the surrounding environment and market conditions. Prices and quantity of goods and services are highly dependent on changes in market conditions (Besanko and Braeutigam 2020). Market conditions, in this sense, includes a plethora of factors such as interest rates, new technology, government policy, and everything which directly or indirectly affect economic functions. This paper presents an analysis of how the recent outbreak of COVID-19 changed the market conditions and affected the supply and demand of Nike Inc.
Nike Inc. is a multinational organization that engages in design, development, marketing, and sales of athletic footwear, equipment, services, apparel, and accessories. The company operates in the clothing and footwear industry (Ahmed 2016). The total retail stores of Nike stood at 1182 in 2018 in the domestic and international market, with headquarter in Oregon, US. As it offers goods for a wide range of sports apparel, Nike has competition from every major sports and sports fashion brand (Ahmed 2016). Moreover, the competitiveness in the athletic wear industry is also increasing; however, Nike has an edge over its competition because of unique designs, great quality, and aggressive marketing.
Market conditions are related to the attractiveness of the overall market in which the business operates(Daujotas 2020). Although numerous factors affect market conditions, the recent outbreak of COVID-19 is one of the major sources of significant changes in the market conditions of numerous businesses. It is harder to ascertain the impact of COVID-19 on businesses because of its novelty and a lack of performance indicators. However, income elasticity can be used to measure how changes in demand and supply of Nike Inc. Price elasticity is the measure of the effect of change in price on demand and supply of a product or service. Because Nike operates in the sportswear industry which produces goods with many substitutes in a competitive market, its products are highly elastic (Slater 2018). This means that an increase in prices will significantly decrease the demand for products.
Figure 1: Elasticity of Nike
The abovementioned diagram illustrates the high elasticity of Nike, as even a small increase in prices from p1 to p2 results in a disproportionate reduction in quantity demanded (from q1 to q2).
Forbes (2020) reported that Nike may face a loss of $3.5 billion Q4 in 2020 because of the global pandemic of COVID-19. This is mainly because to counter the spread of the virus, most of the countries have restricted business activities. In the US, the company had to close all of its stores, along with its stores in Australia, Western Europe, and Canada. This, in turn, reduces the supply of Nike products.
Figure 2: A shift in the supply of Nike (Decrease)
Prices and quantity of goods and services are highly dependent on changes in market conditions. Prices and quantity of goods and services are highly dependent on changes in market conditions. Quantity of good and services are highly dependent on changes in market conditions. Prices and quantity of goods and services are highly dependent on changes in market conditions. P1 Prices and quantity of goods and services are highly dependent on changes in market conditions. P2 Q2 Q1 Prices and quantity of goods and services are highly dependent on changes in market conditions. Prices and quantity of goods and services are highly Quantity of good and services are highly dependent on changes in market conditions. P1 Prices and quantity of goods and services are highly P2 Q2 Q1
As the above-mentioned diagram illustrates, as the supply of Nike decreased from S1 to S2, price increases from P1 to P2, and the demand decreases from Q1 to Q2. Moreover, this reduction in quantity demanded is larger as compared to the increase in prices, because of the high elasticity of Nike's products.
In conclusion, the report suggests that market conditions significantly affect the demand and supply of products and services. However, this change in demand and supply is also highly dependent on the degree of elasticity. Nike has highly elastic products which suggest that a change in prices has a relatively bigger impact on the demand. This is also evident in the recent changes in market conditions, as the introduction of COVID-19 has reduced the supply of products, which resulted in increased prices and a disproportionate reduction in demand.
Ahmed, R. R. 2016. „Strategic Marketing Plan of Nike “. ResearchGate, Indus Institute of Higher Education.
Besanko, D. and Braeutigam, R. 2020. Microeconomics.John Wiley & Sons.
Daujtas, G. 2020. Using elasticity to understand company risk exposure to coronavirus.Available at https://blog.euromonitor.com/using-elasticity-to-understand-company-risk-exposure-to-coronavirus/ [Accessed on 5th May 2020]
Forbes. 2020. Why the coronavirus outbreak shaved off more than $17 billion from Nike's valuation. [Online]. Available at https://www.forbes.com/sites/greatspeculations/2020/02/27/why-the-coronavirus-outbreak-shaved-off-more-than-17-billion-from-nikes-valuation/#6ae6592e60ee [Accessed on 5th May 2020]
Slater, J. 2018. Teaching Price Elasticity of Demand. Teaching Business & Economics, 22(1), pp.12-13.
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