Thesis on "Monopolistic Competition"
Thesis 4 pages (1083 words) Sources: 3 Style: APA
[EXCERPT] . . . .
Monopolistic CompetitionIntroduction to the Situation
Globalization has brought about increased opportunities for corporations to expand their businesses across national boundaries. In this process, several multinational entities were able to create economies of scale. This materialized in their incremental ability to satisfy a growing number of customers. The competition was significantly threatened and local mom and pop stores were forced to close their operations as they could not even ensure a recovery of their investments. The most relevant example in this sense could be offered by number one American retailer, Wal-Mart. Yet, threats of such situations are ever present within all industries, and could lead to the formation of monopolistic competitions. The studies in micro and macroeconomics to explain the monopolistic competition are generally difficult to comprehend. For ease of understanding, the Coca Cola Soft Drinks Company will be used to exemplify some of the most important features of a monopolistic competition.
2. Supply, Demand and Price on the Short-Term
In the immediate aftermath of a monopoly being established, the general tendency is for the supply to decrease. This is due to the fact that, despite the increased capacity and the scale economies from which the monopoly benefits, it still might find it difficult to cover the entire offering of the competitors it eliminated. Not just in terms of product quantities, this reduced demand might be more intensely felt in terms of product diversity. Basically, the same quantities of soft drinks could be available, but the variety of the offer could be limited.
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The short run formation of the prices within a monopolistic competition is a fluctuating one, in which prices could be low, as to not create panic and attract customer dissatisfactions, but they could also be increased as to make a clear statement that the respective company controls the soft drinks market. Customer demand depends directly on pricing strategy implemented by the monopoly. If they promote a low price, demand is likely to increase; if they promote an increased price, demand is probable to decrease (McConnell and Brue, 2004).
3. Supply, Demand and Price on the Long-Term
The general misconception about monopolistic prices is that they are established at the discretionary wishes of the company which controls the market. While this could be true on the short run, its applicability on the long run is reduced. Otherwise put, the long-term prices within a monopolistic competition are expected to be relatively stable, still set by the features of the economy and still affordable to the public. This conclusion can be explained by two features. First of all, the price continues to be dictated by the industry as the manufacturing and distribution of the soft drinks remains pegged to the collaboration of the purveyors. Secondly, soft drinks are not products absolutely necessary for life, meaning that they can be easily replaced by substitute products, such as home made juices, teas or other non-alcoholic beverages. Given this situation, demand for the soft drinks could easily decrease if the retail price suffers a significant increase (von Mises, 1981).
Similar to the price of the soft drinks in a monopolistic market, the demand and the offer are also expected to reach levels of equilibrium, also generated by the confluence of the customers' needs and… READ MORE
Quoted Instructions for "Monopolistic Competition" Assignment:
“Using Coca Cola Soft Drinks, Assume the soft drink business operates in market where the nature of competition is described as *****monopolistic competition*****.
o Discuss what you think will happen to the supply, demand and price of the product in the short-term;
o Discuss what you think will happen to supply, demand and price of the product in the long-term.
o Explain why you think supply, demand, or equilibrium price will be different, if at all, in the short-term and the long-term.
o Identify the factors of production (economic resources including natural, human and financial resources), and for each factor of production give an example of what might be needed to operate the business;
o Explain how the above factors could be used to give the business a competitive advantage.
All book references only.
How to Reference "Monopolistic Competition" Thesis in a Bibliography
“Monopolistic Competition.” A1-TermPaper.com, 2009, https://www.a1-termpaper.com/topics/essay/monopolistic-competition-introduction/825839. Accessed 3 Jul 2024.
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