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What low barriers to entry and 20% unemployment do to competition

April 23, 2010

Today it is Saint George. In Catalonia (Spain) we celebrate this by giving a rose to our wives/girlfriends/prospects and they buy us books (how about a Kindle instead?). The fact that a high percentage of men are going to buy roses that day leads to thousands of street stands where people start selling with just a small table and a bucket full of roses.

This is normally quite a profitable venture where the average Joe can make a few hundred Euros just for some hours work. There was a big difference today though. Too many people were selling. I spoke to a couple of the stand owners who said that they still had over 75% of the roses left at 2pm. One of the ones I spoke to was going to lose over 500€ that day if the sales did not improve substantially. Another one said that he had never seen so many rose stands than this year (he actually had 4 stands at a very short distance from his) and they had actually reduced the price to 2€ per rose (they usually sell from 3€ to 4€) cutting his margin substantially, if he could manage to make a profit that is.

Maybe it is my undercover economist hobby that leads me to come to these conclusions but I think high unemployment (in Spain it is c. 20%) and extremely low barriers to entry (a table) are a recipe for vast competition.

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