How does the bike industry work?

tommywmb
tommywmb Posts: 148
edited April 2008 in MTB general
Asked this over at UK MTB earlier but thought I'd post up here too...

Basically I took a non-biker friend of mine shopping for a bike at the weekend, and he quizzed me over how the bike shops make money out of bikes, and for the life of me I couldn't give him a straight answer!

So, how does the bike industry work?! Do the shops buy stock from the distributor/manufacturer outright? Or do they operate on a 'sale or return' basis? Who sets the price of a bike?

Just out of curiosity can anyone shed any light on this?!