Final answer:
The wheel of retailing theory explains how new retail businesses start with low prices and margins and eventually increase their services and prices as they grow and establish themselves in the marketplace.
Step-by-step explanation:
The theory of retail competition that describes a process where new retail institutions begin as low-price, low-margin operations and progressively evolve to offer more services and charge higher prices is known as the wheel of retailing theory. This theory suggests that as retailers increase their market share and become more established, they often move upmarket in terms of both pricing and the range of services provided. This can eventually lead to a reduction in cost competitiveness, which may provide opportunities for new low-price entrants to enter the market, repeating the cycle.
Examples can be seen across various industries such as airlines, where a new entrants might come into the market with low prices to attract customers, and over time, as they solidify their presence and gain customer loyalty, they may increase prices and service offerings. Another example can be within the grocery sector, where discount stores gradually expand their range of products and services, eventually transitioning into full-service supermarkets with higher price points.