Final answer:
Kmart's strategy, which led to its decline, can be associated with monopolistic competition where it failed to differentiate effectively. Its complacency and inability to innovate in the face of competitors like Wal-Mart resulted in a loss of market share and necessitated a merger with Sears to survive.
Step-by-step explanation:
Kmart is a good example of a business that once employed a strategy that led to its decline in the retail market. This strategy can be attributed to a form of monopolistic competition, where many firms compete with non-identical products, but Kmart failed to sufficiently differentiate itself or keep up with the aggressive strategies of competitors like Wal-Mart. Wal-Mart utilized economies of scale to offer lower prices, which, alongside their diversification and focus on core competencies in retail, allowed them to dominate Kmart and other local businesses.
In the case of monopolistic competition in the retail sector, businesses like those in the Mall of America offer similar yet differentiated products, appealing to a wide customer base while maintaining a unique brand image. Kmart, instead of continuously innovating or adapting to remain competitive in this environment, became complacent. Its products and services didn't stand out against fierce competitors, which ultimately led to its need to merge with Sears in hopes of survival.
Firm strategy in such markets often involves aggressive positioning, as illustrated by the hypothetical competition between Firm A and Firm B. These firms adapt by moving locations or leapfrogging each other to capture a more significant market share. However, Kmart's strategy lacked such dynamism, leading to its downfall and necessitating the merger for a chance of survival.