Read the attached article "Chapters speeds up Superstore expansion,” (Globe and Mail, September 1997).

a. Draw a diagram with two short-run average cost curves, one for a mall-sized bookstore and one for a superstore. Show the relevant portion of the long-run average cost curve. Explain your diagram.
b. In general, what determines whether there is room for one, two or more firms in a market?
c. Explain, using ideas from game theory, why the “...first into a market has a great advantage.” Does it matter whether there is room for one or two firms? Explain.

Chapters speeds up superstore expansion
The Globe and Mail September 1997
By Paul Waldie

TORONTO — Chapters Inc. is speeding up its expansion to solidify its position as the biggest bookstore chain in Canada.
The company said yesterday it will have opened as many as 17 superstores by April, two more than planned. And it expects to bring that total to 75 by 2000.
Chief executive officer Larry Stevenson also said he is comfortable with analysts' forecasts that Chapters' profit could jump 56 per cent this fiscal year to around $8-million.
It's all part of a strategy to build on the superstore formula, abandoning mall locations in favour of "destination" stand-alone bookstores, featuring a larger inventory, pleasant surroundings conducive to reading, and a coffee bar.

Toronto-based Chapters has been focusing on that model since it was founded in 1995 through the merger of Smith-Books and Coles Book Stores Ltd. The company has 356 stores including 21 superstores. The superstores have all opened in the past two years.
Chapters is also moving on to university campuses and will soon be running the bookstore at McGill University in Montreal, Mr. Stevenson announced at the company's annual meeting.

About 10 other universities have approached the company to run their bookstores but no deals are imminent, he said. The company's new college book division could ultimately have annual revenue of up to $100-million once it is established. Chapters' overall revenue was $389.8-million last year.
The expansion "is really quite staggering," said Len Kubas of Kubas Consultants in Toronto.

"We haven't seen that sort of rapid expansion in Canada with the exception of Business Depot. Business Depot Ltd. of Markham, Ont., started in 1991 and currently has 69 stores.
"Obviously [Chapters] has found the right formula, Mr. Kubas added. “I'm very bullish on the performance to date.” So are investors, who sent Chapters' shares up 95 cents yesterday to hit a record close of $19.50 on the Toronto Stock Exchange. The company went public in December at $15.
Mr. Stevenson said Chapters is focusing on superstores because that is the future of the book industry. He said the company's long-term goal is to generate about two-thirds of its annual revenue from superstores. The superstores currently account for about a quarter of the company's revenue.
“I don't think the book industry should be at the whims of the mall landlords,” he said. “It should be at the whim of the book industry, to get those books to consumers. I don't think mall retailing is growing. “

Chapters has closed about 95 mall stores since 1995, and Mr. Stevenson said about 20 will be shut every year for the next few years.
The superstores are about 25,000 square feet and contain around 100,000 titles. Typical mall stores are about 2,700 square feet and have 10,000 titles. The superstores planned for 1997 and 1998 include two in Calgary, three around Vancouver, one in Winnipeg, one in Edmonton and 10 in Ontario. Not all the stores are in large centres, Mr. Stevenson said, pointing to the mid-sized Ontario cities of Barrie and Kingston.

That's because the key to determining where to locate a superstore is the number of university graduates in the area, he said. Typically, Chapters looks for a market with between 15,000 and 18,000 university graduates. Using that criteria, Mr. Stevenson said there are up to 150 potential locations in Canada.
Toronto retail consultant John Winter said Chapters' superstores have been successful because they have created a new method of book selling.
"It's a new mousetrap," he said. “It works and there is room in the market so they are going to expand."

Chapters has a big advantage over its competitors because it was the first company to build a book superstore in Canada, he said.
"First into the market has a great advantage because it gets best sites and so on," Mr. Winter said.
At present, Chapters faces no major competitor. But that could change soon. Indigo Books and Music Inc. of Toronto has opened one superstore in Burlington, Ont., and plans to open another one in Kingston and in Toronto's Yonge and Eglinton district, where Chapters is also planning a superstore. McNally Robinson Booksellers has also opened a superstore in Winnipeg to challenge Chapters.
"It's like most new inventions, Mr. Winter said. "The first few are very exciting and they pick up market share. And, then everybody jumps in, they all build like crazy and after a while the market is saturated." Mr. Kubas said Chapters is moving fast to head off future competitors.
"I think there is a concern that if they don't get established now, they may find some of the business kind of evaporating through Internet sales. Or, an American operator is going to somehow come into Canada."

Read the attached article &quot;Chapters speeds up Superstore expan...

Read the attached article "Chapters speeds up Superstore expan...