Discussion 3 – Microeconomics

Discussion 3 – Microeconomics

Discussion 3 – Microeconomics (150-200 words) – Reply to Jackeline’s discussion post based on her answer to questions 1 and 3 from the list of questions provided in the last assignment. The questions are below:

1-What is “monopolistic” about monopolistic competition? What is “competitive” about monopolistic competition?? Please explain.

3-Explain the following statement “If the amount of product differentiation in a monopolistically competitive industry is very small, the outcome in that market will be similar to a perfectly competitive industry.”

Jackeline’s Reply to these questions:

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1.) If I had never taken micro I would never have associated having both monopolistic and competition together as in monopolistic competition to describe a market. It would seem to be a incompatible market structure but I now know it is a common market structure that embraces a number of contradictory aspects.

The monopolistic characteristic is derived from a sector of businesses that for the most part produce a product (rather than provide a service; although this can happen) that is unique from the many others in that sector that produce a very similar product but offer their own “brand of uniqueness. Thus the uniqueness of the product makes each individual producer appear to be a monopoly unto themselves.

The competition element is attributable to all those within this market competing for the same customer.

A real life example would be sneaker companies. Those that focus in on basketball. Nike has Air Jordan and Lebron James sneakers; Adidas has James Harden; Under Armour has Stephan Curry. Each “brand” has a unique element that renders it distinct from the other; and yet they are competing for the very same customers.

3.) One of the hallmarks of a monopolistic competitive market is that there are many producers/sellers in that market but more importantly the products of goods and services sold relative to others they are competing against for those very same customers are not perfect substitutes. There is some unique element that defines them relative to the competition

So if there is only a slight to no variation between the goods and services produced by a monopolistically competitive company the many customers are not going to be able to distinguish between these products which by now have now become identical products in the eyes of the consumer. At this point where consumers/buyers cannot differentiate one product from another; the only way for the producer to differentiate is through price. A producer will now have to lower their prices in order to differentiate from the other manufacturer, producer, supplier, service provider

As we learned in the past chapters a perfectly competitive market is a market that has many firms selling an identical product. Their only means of differentiating is offering the lowest price -becoming price takers- relative to their competition. In effect having little to no differentiation or uniqueness exposes or transforms monopolistically competitive firms into perfectly competitive firms.