Fashion industry is also known as clothing industry. It involves the manufacture of garments, involving the conversion of cloth or fabric into wearable garments with different designs. The manufacturing process is often the same worldwide, regardless of where the manufacturer is although the designs they come up. It involves creative and critical thinking in order to come up with unique and different art of manufacturing garments in order to face competitors under the same industry (Jones, 2006).
Short and Long-run Trend
Market models explain the real world using market theories in order to explain how it works. Fashion industry has undergone several changes in the market, which aims at expanding the industry. Fashion industry is monopolistic; as it keeps on differentiating its products, though there are highly substituted due to increased selection of style by the society for the past three decades. There are many buyers and sellers in the market, as the society, who act as consumers, demand more and unpredictable variety of fashion to suit their needs. The price of factors and technology are given, and the firms aim at profit maximization due to highly placed premiums resulting from the unpredictable demand of the consumers. There is free entry and exit of firms in the industry depending on the demand sway of the products (Jones, 2006). General fluctuation of demand makes the responsiveness of the industry towards demand highly elastic.
During short-run and long run, the fashion industry varies its operations. During the short-run, the fashion market will act like monopoly whereby the firms under fashion category maximize profits and make super-normal profits. Under short-run, the market price is influenced by demand of products from textile firms, which is higher than the normal demand. The garment manufactures limit the supply of their products in the market. This enables them to maximize profits during...
Firms have free entity into the industry; hence, other, several firms add up in the industry. This will make the supernormal profits fall until the normal profit level is achieved by sharing the supernormal profits entirely including the new firms. The demand for textile products will be equal to the average revenue of the market, for profits to be achieved.
Transaction cost
Transaction cost is the price a firm pays in order to market or sell its product in an economy. It involves the price paid to market their goods throughout their distribution until it is consumed. Trade chain is a field in the fashion industry that contributes to transaction cost. The longer the chain implies more transaction cost. Brokerage cost is a form of transaction cost. This is the payments of brokers, who market the goods on behalf of the industry. They take full charge of the product after it is handed over to them (Kemp, 2011). Fashion industry could also incur from the cost of integration, which involves the ease of flexibility of the industry to market changes. Depreciation and marginal cost could also be incurred by the fashion industry, since their products are subjected to wear and tear and with the time that also adds up to the firm's transaction cost.
Marginal cost incurs when an additional unit is produced, but still it will go unsold and in turn increase the transaction cost later, and the more it is subjected to tear the more the transaction cost to pay. Several behaviors could lead to the increment of transaction costs. Brokerage cost could be because of longer chains that can be minimized by the producer. Fashion managers under different firms should find direct markets to sell…
