Applying Monopolistic Competition Managerial EconomicsCharles W Upton College

Applying Monopolistic Competition Managerial Economics-Charles W. Upton

College Textbooks • Suppose a book costs $90 and has MC of $20. We can figure out the price elasticity of demand Applying Monopolistic Competition 2

College Textbooks • Suppose a book costs $90 and has MC of $20. We can figure out the price elasticity of demand -1. 28 Applying Monopolistic Competition 3

College Textbooks • That is not the end of the story Applying Monopolistic Competition 4

College Textbooks • That is not the end of the story • Entry Applying Monopolistic Competition 5

College Textbooks • That is not the end of the story • Entry • Non-price competition Applying Monopolistic Competition 6

College Textbooks • That is not the end of the story • Entry • Non-price competition – Slick books – “Freebies for instructors” Applying Monopolistic Competition 7

College Textbooks High Costs High Prices Applying Monopolistic Competition 8

College Textbooks High Costs High Prices Price Elasticity of Demand Applying Monopolistic Competition 9

College Textbooks High Costs High Prices Price Elasticity of Demand Monopoly Prices Applying Monopolistic Competition 10

College Textbooks High Costs High Prices Price Elasticity of Demand Monopoly Prices Non-price Competition Applying Monopolistic Competition 11

College Textbooks High Costs High Prices Price Elasticity of Demand Monopoly Prices Non-price Competition High Costs Applying Monopolistic Competition 12

K Mart Price Y K Mart is in Trouble. Why? X Applying Monopolistic Competition Quality 13

K Mart Price K-mart Target Wal-Mart Applying Monopolistic Competition Quality 14

K Mart Price K-mart Target Wal-Mart Applying Monopolistic Competition Quality 15

On the Beach P Q W K Applying Monopolistic Competition T 16

On the Beach P Q W K Applying Monopolistic Competition T 17

On the Beach P Q W K Applying Monopolistic Competition T 18

On the Beach P Q W K Applying Monopolistic Competition T 19

K-Mart Strategies P Improve quality and compete with Target. The problem is that it must improved perceived quality. W K Applying Monopolistic Competition Q T 20

K-Mart Strategies P Improve quality and compete. Cut withprice Target. The and compete problemwith is that it must The Wal-Mart. improved perceived problem is that no one quality. thinks they can compete with Wal-Mart on price. K W T Applying Monopolistic Competition Q 21

K-Mart Strategies P Improve quality and compete. Cut withprice Target. The and compete problemwith is that it must The Wal-Mart. Think outside the improved perceived problem is that no one box. thinks Buy Sears quality. they can compete and Transform with Wal-Mart on price. K W T Q the Company Applying Monopolistic Competition 22

Conclusion • Product Differentiation can give some monopoly pricing Applying Monopolistic Competition 23

Conclusion • Product Differentiation can give some monopoly pricing • But competition does not disappear Applying Monopolistic Competition 24

Conclusion • Product Differentiation can give some monopoly pricing • But competition does not disappear • Non price competition rears its head Applying Monopolistic Competition 25

Conclusion • Product Differentiation can give some monopoly pricing • But competition does not disappear • Non price competition rears its head • The process continues until, like competitive firms, businesses are earning zero profits. Applying Monopolistic Competition 26

End © 2005 Charles W. Upton Applying Monopolistic Competition 27