Question

9.

The following discussion allows you to investigate on your own some firms that demonstrate characteristics that one might expect in a monopolistic competitive environment. Essentially, monopolistic competitors really sell similar products! In a shopping mall if you look for shoe shops in the directory you may find over a dozen. If you shop online and Google “Shoes” you may find hundreds or thousands of places to buy shoes. What then separates perfect competition from monopolistic competition? Advertising and the power of advertising allows all of these shoe sales companies to differentiate their product by use, features, style, warranty, etc.

The characteristics of monopolistic competition are as follows:

• Number of Firms: There are lots of firms in this industry (in the tens if not hundreds)
• Market Share: No particular firm has any significant market share
• Type of Product: Differentiated – while each firm may make the same kind of product, they are differentiated in their features, service, location/availability, and branding which includes but is not limited to color, texture, logo, trademark, and brand equity. It is this difference that gives them a “monopoly” on their brand (e.g. Apple has a monopoly on the iPhone brand).
• Entry: Entry relatively easy (easier than monopoly, and oligopoly, yet harder than pure competition.
• Price/Market Power: The supplier determines, the price inasmuch as a differentiated product gives them some price power – the more different the product, the greater the price power.

Find an industry or firm that fits a monopolistic competitive model and provide at least 3 pieces of evidence based on the five characteristics above.

Answer 1

The thing which separates perfect competition and monopolistic competition is in perfect competition, all the products will be identical ; but in monopolistic competition, all the products will be different.

Nike is an industry which fits monopolistic competition model. Nike is globally successful company which produces athletic footwears and other equipments regarding sports.

• There are many number of firms in this fields such as addidas, puma, reebok etc.
• None of these firms have any market share.
• Eventhough all these companies produces shoes, each are differentiated from each other. Nike is a really successful athletic footwear because they have cushion, light weight and have greatest technologies and equipment. It also has a community for runners to monitor the progress of runners which all make it differentiated from others.
• Entry is easy. But inorder to hold in this field, the product should have some sort of differentialities which can attract customers.
• The price of the products can be completely determined by the firms. Since addidas is globally recognized brand due to its features and comfort, it can price any amount to their products. People will prefer this brand even though it had much larger price than its competitors.

Thanks!..