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My short-sighted view on the gloves market
The article discusses the elasticity of the glove industry and its earnings outlook in the year 2017. It also discusses how the challenges faced such as rise in prices of raw materials and the expansion plans. In the second part of the article, it discusses the new competitions in the glove industry due to higher demand in gloves, and how will that affect the selling price of gloves.
In the year 2017, the demand for natural rubber and nitrile gloves is inelastic as written in the article. It means that the demand for these gloves is less responsive to price changes, and its price elasticity is lesser than 1. The reason for these gloves to be inelastic is mainly due to fewer substitution options available. Medical and industrial gloves are compulsory protective equipment to be used in hospital and factories, and there is no substitution available to replace gloves in these places. Besides, the demand for gloves is inelastic in the short run as gloves are a compulsory item to consumers like hospitals and factories, and people still need to use it even if there is a sudden price change.
The industry can weather a period of costs by adjusting to higher selling prices, while the demand for gloves still, is expected to grow 6% to 8% every year. It reflects the inelastic of gloves. On the other hand, raw materials and gloves are complements. It is because a rise in the price of raw materials will cause the selling price of gloves to increase, and consumers will suffer a higher cost, resulting in a possibly lower sales of gloves.In the year 2020, Covid-19 has positively impacted the demand for gloves, especially medical gloves. Hence, the demand curve shifts to the right following higher demand for gloves, causing the number of gloves demanded to increase and the ASP (Average selling prices) to rise till it reaches market equilibrium as shown in graph 1.
The glove manufacturers will boost their production till price equals to marginal cost to maximize profit, and their profit will increase from (the blue area) to (the green area + the blue area).However, several companies are planning to set up glove manufacturing facilities to explore a new market. After the completion of the factories and production lines, the supply of gloves will increase in the long-run period. But the demand of gloves is mainly due to the Covid-19 pandemic, and once the vaccine is approved, the demand for gloves will slowly diminish towards the pre-Covid level, despite there is still an annual growth rate of 6% to 8%. There will be an oversupply in gloves, in result, the ASP (average selling prices) will drop, and individual companies will produce fewer gloves as they will produce output at the level where the price is equal to marginal cost. Despite that, the old players still have an advantage as the newcomers do not have economies of scale, and the new players will suffer a higher cost, hence limiting output production.