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Economics of the Hockey Equipment industry?

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05-26-2010, 04:04 PM
  #1
AIREAYE
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Economics of the Hockey Equipment industry?

Hey guys,

In high school (International Baccalaureate program), we have to write a 4000 word essay on any topic and I have chosen mine to be:
How Supply/Demand and the Oligopolistic nature of the hockey equipment industry affects pricing strategies for products

Basically, I'm looking at how the major brands in the industry compete with each other and considering the needs of the market, set prices for their products.

I already know a lot about what I'm gonna say, but I'd like some insight from you guys too.

1: Is the equipment industry dominated by these 5 firms (in order of power)?
Bauer, Easton, Reebok-CCM, Warrior, TPS-Sherwood

2: Based on current and future market demand for hockey gear, which price-point of equipment would grow/shrink? Entry-level, 'intermediate' or Elite level?

3: ^ Would prices for gear increase or decrease?

4: What would be the best place to obtain such industry information first hand? By contacting the companies, asking LHS owners or internet pricing (ex. Hockeymonkey)?

I really look forward to writing this essay, thanks for your help

note: I posted this on MSH as well

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05-26-2010, 04:30 PM
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Well the market fits an oligopoly to a T, so it should practically write itself.

I'd imagine you'd want to try and get some insight as to the costs of production, especially overseas, since that's going to be a large barrier to entry for new firms. Also look into the NHL brand usage fees because a huge part of sales is due to athlete endorsement and usage, and that's another big barrier to entry.

For pricing, see if you can find the retail prices for one piece sticks going back for the last 10 years...should see a pretty steady escalation in price to demonstrate the price-setting model.

Also look into the mergers that have taken place...Reebok buying up CCM, Jofa, and KOHO, Mission buying up Itech and then being bought by Bauer which was bought by Nike, Sherwood buying TPS, etc.

As for the market, my guess is entry level sticks weren't really a big deal until OPS came around, and over the last few years that's probably been a big area of growth. Best to talk to hockey shops and find out their percentage of units sold, revenue, and profit margin for those different price points.

The real miracle would be convincing these people to give you info though!

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05-26-2010, 06:15 PM
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Quote:
Originally Posted by AIREAYE View Post
Hey guys,

In high school (International Baccalaureate program), we have to write a 4000 word essay on any topic and I have chosen mine to be:
How Supply/Demand and the Oligopolistic nature of the hockey equipment industry affects pricing strategies for products

Basically, I'm looking at how the major brands in the industry compete with each other and considering the needs of the market, set prices for their products.

I already know a lot about what I'm gonna say, but I'd like some insight from you guys too.

1: Is the equipment industry dominated by these 5 firms (in order of power)?
Bauer, Easton, Reebok-CCM, Warrior, TPS-Sherwood

2: Based on current and future market demand for hockey gear, which price-point of equipment would grow/shrink? Entry-level, 'intermediate' or Elite level?

3: ^ Would prices for gear increase or decrease?

4: What would be the best place to obtain such industry information first hand? By contacting the companies, asking LHS owners or internet pricing (ex. Hockeymonkey)?

I really look forward to writing this essay, thanks for your help

note: I posted this on MSH as well

1) I don't know if you need 5, but TPS-Sherwood is not a large power in the hockey industry. The first four you listed seem pretty accurate IMO, but after those 4 it gets a bit grey and really depends on where you're located.

2) We have recently seen the price-point of the elite level skate from Bauer increase (TotalOne being 800) so I can see that trend developing. Same with sticks as well, the top of the line stuff keeps getting more expensive.

3) Elite Level stuff increasing with equivalent intermediate or beginner stuff remaining the same.

4) If you have a good relationship with someone at a LHS that'd be the route I would take. They be slightly more open with information than an actual company I'd believe.

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05-26-2010, 06:41 PM
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#1. After the first three, it starts to get shady. Warrior just recently expanded from sticks and gloves into the rest of the player gear, right? TPS/Sherwood doesn't have much pull in the player gear market but still has a bit of stock in the goalie gear market.

Actually, if you take goalie gear into consideration as well -- smaller market, but larger prices -- then Reebok would be a contender for the #1 spot. Vaughn, Reebok, and Brians are the big goalie manufactures, though Vaughn and Brians are limited to goalie gear. Remember, goalies need skates ($700), pads ($1600), gloves ($800), a mask ($1000), chest ($500), pants ($250), and two sticks (2 x $300). Add in smaller items like cups and neck guards, and you can break the $6k mark to be equipped like a pro. Don't even get me on how much money goalies spend to customize their gear, from tweaks on pad graphics to mask paint jobs.

#2. Especially as the economy recovers, the market for pro-level gear will grow. In Canada it's certainly been growing for a while now -- I'm seeing more and more pro-level skates in beer league dressing rooms, for example.

#3. Prices will certainly increase. They've been slowly but steadily increasing for the last 10 years, and I don't see them stopping anytime soon.

#4. LHS and internet pricing would be your best bet. Knocking on the doors of multinational companies and asking them to hand over their market research usually doesn't get big results. At least when you go to a LHS, you're face to face and have the human factor on your side.

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05-26-2010, 08:54 PM
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Wow, I'm really grateful for your input. But in response:

1 and 4 : I don't think I can just state that the industry is an oligopoly without some data to back it up. I need how much each of the top few companies have in terms of market share AKA concentration ratio. I don't think I can get that data from the corporations OR the LHS....

Thus, i suppose I must resort to using sales figures from an LHS but the only hockey shops we have here are Prohockey life, hockey Experts, Sportchek etc. I don't think those places will give me info either

And no, I'm not considering goalie gear, I'm writing an essay, not a book

2 and 3: I suppose what Ininew and Jarick says are true about elite products demand increasing and thus, price would increase too (there are other factors of course)

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05-27-2010, 07:35 AM
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But a key thing is the price setting and to dothat they have short product life cycles and each year raise prices a bit. It's not so much demand as it is suppliers shifting the supply curve and what seems to be a fairly inelastic demand curve. For non economists, that means the companies keep raising prices and customers keep buying the same amount. Another feature of the oligopoly is the unspoken arrangement to not lower prices...you never see a company unilaterally lowering prices.

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05-27-2010, 02:50 PM
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Quote:
Originally Posted by Jarick View Post
But a key thing is the price setting and to dothat they have short product life cycles and each year raise prices a bit. It's not so much demand as it is suppliers shifting the supply curve and what seems to be a fairly inelastic demand curve. For non economists, that means the companies keep raising prices and customers keep buying the same amount. Another feature of the oligopoly is the unspoken arrangement to not lower prices...you never see a company unilaterally lowering prices.
Price setting: what do you mean by that?

Supply curve: as in they increase supply of NEW LINES of equipment and not increasing the supply of equipment overall?

Demand Curve: demand for hockey equipment overall is inelastic yes, but for a brand it would be fairly elastic due to competition (not counting brand loyalty of course)

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05-27-2010, 03:16 PM
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Price setting as in, each firm has such large market share that they can impact prices, and with an oligopoly it's even more so. I'd imagine with this paper you'd want to follow the template of state your thesis, define an oligopoly, show how the firms fit the criteria of an oligopoly, then get into the meat of the supply/demand, right? I'd probably focus on a few of the criteria (instead of, say going through a dozen reasons why it's an oligopoly), and I'd imagine the price setting would be a large one since that's most of your paper's content.

Anyways, I'm not sure exactly how you would depict that kind of price movement, but you could probably find similar papers regarding the auto industry. My guess would be the supply curve shifts to the left, because when they introduce a new technology, the marketing, R&D, and retooling costs would justify the price increase, hence an increase in production costs would shift the curve to the left. But the inelastic demand curve means players are still buying the gear in close to the same amount even at the higher prices.

And since you're talking about oligopoly pricing, you'd want to look at the market S&D model rather than worrying about brands...usually when looking at a specific firm you'll do more cost and revenue analysis.

If you couldn't tell, six years of studying economics and a degree in the field with pretty high marks

EDIT: The more I think about it, the demand curve would be drastically inelastic...but I would talk to a hockey shop to gauge that. Also, an idea of guessing the number of sticks purchased per player, if you could figure out how many sticks are sold, see if you can find the number of registered hockey players in that market. So if units sold went up 10% but registered players went up 20%, that would affect the curves a bit and would indicate more of a drop in quantity demanded depending on the average retail price, etc.


Last edited by Jarick: 05-27-2010 at 03:21 PM.
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05-27-2010, 03:54 PM
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Quote:
Originally Posted by Jarick View Post
Price setting as in, each firm has such large market share that they can impact prices, and with an oligopoly it's even more so. I'd imagine with this paper you'd want to follow the template of state your thesis, define an oligopoly, show how the firms fit the criteria of an oligopoly, then get into the meat of the supply/demand, right? I'd probably focus on a few of the criteria (instead of, say going through a dozen reasons why it's an oligopoly), and I'd imagine the price setting would be a large one since that's most of your paper's content.

Anyways, I'm not sure exactly how you would depict that kind of price movement, but you could probably find similar papers regarding the auto industry. My guess would be the supply curve shifts to the left, because when they introduce a new technology, the marketing, R&D, and retooling costs would justify the price increase, hence an increase in production costs would shift the curve to the left. But the inelastic demand curve means players are still buying the gear in close to the same amount even at the higher prices.

And since you're talking about oligopoly pricing, you'd want to look at the market S&D model rather than worrying about brands...usually when looking at a specific firm you'll do more cost and revenue analysis.

If you couldn't tell, six years of studying economics and a degree in the field with pretty high marks

EDIT: The more I think about it, the demand curve would be drastically inelastic...but I would talk to a hockey shop to gauge that. Also, an idea of guessing the number of sticks purchased per player, if you could figure out how many sticks are sold, see if you can find the number of registered hockey players in that market. So if units sold went up 10% but registered players went up 20%, that would affect the curves a bit and would indicate more of a drop in quantity demanded depending on the average retail price, etc.
I'd imagine... price setting would... : absolutely bang on. As of now, I haven't formed my skeleton essay yet, just probing some insight, but I was tihnking on focusing on pricing strategies for different levels of products (entry-elite)

auto industry : Yeah, I was comparing the auto industry to this when I noticed several similarities, including several major recognized brands, new product lines and (unsure) levels of products

supply curve : I understand the costs increasing, so you're saying that S curve shifts left without the supply itself decreasing?

market S&D : definately, I wouldn't consider brand S&D as its mostly due to brand loyalty and consumer preference (will prob include a snippet about Bauer's recall decreasing demand slightly however as an example)

units sold/player ratio : If I had the resources and time...




Wow Jarick I really appreciate the help, I'm looking to get into the industry as a career adn this kinda stuff really fosters that interest.

I will be continually posting updates about research (but I must consider plaigarism by guys here as a possibility ) as this essay will be due in November


If anyone has other insight into the industry, not necessarily econ based, I would be VERY grateful

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05-27-2010, 04:26 PM
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Well there's only two types of supply, the supply curve, and quantity supplied along the supply curve. Quantity supplied can only change with a shift in the demand or supply curve or with some kind of external hard price floor or ceiling. So if we're talking price setting, it's not a shift in the demand curve and it's not a price ceiling.

Maybe there could be a price floor component, and you could possibly get into the idea that quantity supplied is greater than quantity demanded, creating a surplus, and then that inventory needs to be liquidated as the new models are introduced...but I'm not sure I've ever studied that situation.

Anyways, the best example would probable be the supply curve shifting left, which would increase equilibrium price and lower equilibrium demand...but if you can find out if units sold are fairly constant, then you could say the demand curve is more inelastic.

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05-27-2010, 04:27 PM
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Whoops, that should read the demand curve is likely NOT drastically inelastic...but that's just a guess!

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05-27-2010, 05:04 PM
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Well there's only two types of supply, the supply curve, and quantity supplied along the supply curve. Quantity supplied can only change with a shift in the demand or supply curve or with some kind of external hard price floor or ceiling. So if we're talking price setting, it's not a shift in the demand curve and it's not a price ceiling.

Maybe there could be a price floor component, and you could possibly get into the idea that quantity supplied is greater than quantity demanded, creating a surplus, and then that inventory needs to be liquidated as the new models are introduced...but I'm not sure I've ever studied that situation.

Anyways, the best example would probable be the supply curve shifting left, which would increase equilibrium price and lower equilibrium demand...but if you can find out if units sold are fairly constant, then you could say the demand curve is more inelastic.
Price floor : I find that very hard to believe... a set price maximum?

surplus : very true, as with almost every sport, it has its seasons and the time when Qs > Qd is right after the season ends (around mid spring) all the way until early august


As an aside I'll be looking into the following other topics:

- inflation of prices
- comparison of product levels between Easton and Bauer
- causes of changing demand

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05-28-2010, 05:00 PM
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EDIT: Knowing what I'm talking about would be smart, sorry aboutthat. I'll try to find you something usefuly for cost figures.


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05-30-2010, 08:25 AM
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EDIT: Knowing what I'm talking about would be smart, sorry aboutthat. I'll try to find you something usefuly for cost figures.
whao there bud, your suggestion on 10K reports are bang on, heres what I found form Easton and Reebok-CCM:

Easton -
wholesale shipments of gear rose 9% form 2006 to 2008 in the US
they 'believe' that 47% of NHLers use their sticks (should be higher now that a lot of pros switched over to the S19 or the repainted whatever)
from 2007-2009, net sales were around 15% of Easton's sales , around $112 000 000

Reebok/CCM -
not a lot of numbers data, but sales decreased 5% in 2009 about 177 million Euro


Now I need to find stuff from Warrior (part of New Balance), TPS-Sherwood and Bauer (no 10k reports ANYWHERE)

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05-30-2010, 10:43 AM
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Price floor : I find that very hard to believe... a set price maximum?

surplus : very true, as with almost every sport, it has its seasons and the time when Qs > Qd is right after the season ends (around mid spring) all the way until early august
Price floor meaning they set prices above equilibrium so quantity supplied exceeds quantity demand. As they phase out the product, they gradually lower prices until all goods are sold.

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05-30-2010, 08:44 PM
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Price floor meaning they set prices above equilibrium so quantity supplied exceeds quantity demand. As they phase out the product, they gradually lower prices until all goods are sold.
True, it's also interesting to note that over on MSH, they say that Easton never blowout sticks near the end of the season to eliminate excess stock...Easton believes that it is better to have a shortage than overstock

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06-01-2010, 10:59 AM
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Thats an interesting topic that you've chosen to write on.

As has already been stated your biggest issue will be obtaining information that you'll be able to actually use a source because companies don't give up that information very easily.

An area that should have lots of information that has only been touched on in the above posts that might also be of interest is the trend of manufacturers going from producing goods in-house in North America/Europe to outsourcing the production component of their supply chain to third party manufacturers in lesser developed countries. No Logo author Naomi Klein or googling Nike + sweatshops should turn up some hits.

Good luck and please post your essay on the board.

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06-01-2010, 01:08 PM
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Originally Posted by AIREAYE View Post
Hey guys,

In high school (International Baccalaureate program), we have to write a 4000 word essay on any topic and I have chosen mine to be:
How Supply/Demand and the Oligopolistic nature of the hockey equipment industry affects pricing strategies for products

Basically, I'm looking at how the major brands in the industry compete with each other and considering the needs of the market, set prices for their products.

I already know a lot about what I'm gonna say, but I'd like some insight from you guys too.

1: Is the equipment industry dominated by these 5 firms (in order of power)?
Bauer, Easton, Reebok-CCM, Warrior, TPS-Sherwood

2: Based on current and future market demand for hockey gear, which price-point of equipment would grow/shrink? Entry-level, 'intermediate' or Elite level?

3: ^ Would prices for gear increase or decrease?

4: What would be the best place to obtain such industry information first hand? By contacting the companies, asking LHS owners or internet pricing (ex. Hockeymonkey)?

I really look forward to writing this essay, thanks for your help

note: I posted this on MSH as well
1) It depends on what type of equipment you are looking at Graph would be a major one for hockey skates as well as some protective equipment (they make nice gloves, shoulder pads, and used to make good pants). Tackla would be a big one for hockey pants (the best hockey pants in terms of protection IMO). Eagle makes beautiful player gloves and used to be big in Goalie equipment not sure if they still are.

2) This would depend on the area in question but I would say overall the entry level price point will increase the most because hockey is a growing sport in many European countries as well as in some states in the US.

3) Hockey gear will continue at around the same price range with peaks in cost for high-end equipment when ever new technology comes out - ex. when one-piece sticks entered the market.

4) the best place would be to contact retailers IMO (work for one) to see how the products perform in that area though I would try to do it in a few different markets because for example in the market I work, high-end equipment does very well and Graph skates would probably be second behind Bauer in sales for skates and Eagle would be second behind Bauer in players gloves (maybe even first) and I could see an increase in intermediate sales with a decrease in entry-level equipment sales within this market.

My two-cents

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06-01-2010, 03:16 PM
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Quote:
Originally Posted by Ricky Bobby View Post
Thats an interesting topic that you've chosen to write on.

As has already been stated your biggest issue will be obtaining information that you'll be able to actually use a source because companies don't give up that information very easily.

An area that should have lots of information that has only been touched on in the above posts that might also be of interest is the trend of manufacturers going from producing goods in-house in North America/Europe to outsourcing the production component of their supply chain to third party manufacturers in lesser developed countries. No Logo author Naomi Klein or googling Nike + sweatshops should turn up some hits.

Good luck and please post your essay on the board.
Lol, I'm afraid Im not gonna post my essay, being that it is an official IB document and due to privacy/plaigarism concerns. I will post snippets of research however

Quote:
Originally Posted by Faryn View Post
1) It depends on what type of equipment you are looking at Graph would be a major one for hockey skates as well as some protective equipment (they make nice gloves, shoulder pads, and used to make good pants). Tackla would be a big one for hockey pants (the best hockey pants in terms of protection IMO). Eagle makes beautiful player gloves and used to be big in Goalie equipment not sure if they still are.

2) This would depend on the area in question but I would say overall the entry level price point will increase the most because hockey is a growing sport in many European countries as well as in some states in the US.

3) Hockey gear will continue at around the same price range with peaks in cost for high-end equipment when ever new technology comes out - ex. when one-piece sticks entered the market.

4) the best place would be to contact retailers IMO (work for one) to see how the products perform in that area though I would try to do it in a few different markets because for example in the market I work, high-end equipment does very well and Graph skates would probably be second behind Bauer in sales for skates and Eagle would be second behind Bauer in players gloves (maybe even first) and I could see an increase in intermediate sales with a decrease in entry-level equipment sales within this market.

My two-cents
I'm considering Graf as well for my number 5 position behind TPS-Sherwood, but for brands like Tackla or Eagle, I won't consider those as I'm looking into the entire industry, not just goalie stuff or gloves etc.

Price Range: That makes sense, I've noticed that intermediate/elite level products have always risen in price each year, while there will always be the $60 or $70 entry level stick

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