South-Western Economics  
Just-in-Time State of the Art Fashion
Subject Comparative statics
Topic Monopolistic Competition
Key Words Just-in-time, cooperative, competitor, production, manufacturer, retailer, sales, delivery system, models, consumers
News Story

Zara, a clothing manufacturer and retailer based in Spain, is unique for providing just-in-time low-cost fashion. The company designs new collections in only four or five weeks, quickly reacting to trends, such as what is stylish on a music video, in magazines, at shows, and in fashionable cafes, restaurants, and bars. A collection can be manufactured in a week, at its modern facility in northwestern Spain or at 400 cooperatives run by local seamstresses. This compares to the typical competitor's six-month design phase and three-month production period.

A new collection is test-marketed in a selection of stores around the world, and sales are monitored carefully using computer technology. If the sales are brisk, more items are produced and distributed. Deliveries are made twice a week, and clothes rarely remain on the shelf for more than a week. This just-in-time delivery system means that inventory costs are low.

Models are changed, updated, and mixed and matched frequently. This attracts consumers on a regular basis because they can buy something different each time. They are also under pressure to buy because they are unlikely to find the same item at a later date.

(Updated July 1, 2001)

Questions
1. In what ways is the fashionable clothing industry monopolistically competitive? Refer to the characteristics of monopolistic competition.
2. Draw a diagram of a representative firm in the clothing industry in the short run. Be sure to include the demand and marginal revenue curves and the average total cost and marginal cost curves. Show the effect of the firm being more responsive to fashion trends, as Zara has been. Explain what you have drawn. What happens to the price, output, and profit of the firm as a result?
3. In a new diagram of the firm, show the effect of a just-in-time delivery system. Explain why you moved the curve(s) you did. What happens to price, output, and profit?
Source Carlta Vitzthum, "Just-in-Time Fashion," The Wall Street Journal, May 18, 2001.

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