Week 9
Announcements
Todays aims
Understand
competition
Compare monopolistic competition and perfect
competition
How firms differentiate products and their
product/market strategy
Look at the role of advertising and its effects on
business
Perfect
competitio
n
Many firms
with a
homogeneous
product
Monopolistic
competition
Oligopoly
Monopoly
Many firms
with
differentiated
products
A few
producers
with high
market
power
A single
producer
without
substitutes
Monopolistic competition
Monopolistic competition
1.
2.
3.
Monopolistic competition
Monopolistic competition
Monopolistic competition
The
Monopolistic competition
Short-run equilibrium
Firm level
Price
Positive
profits in the
short run
Market level
Price
mC
AC
mR
q
d
D
quantity
Quantity
10
Monopolistic competition
Long-run equilibrium
Firm level
Price
zero profits in
the long run
Market level
Price
mC
S S
AC
p
p2
mR
q2 q
d
D
quantity
Q Q2
Quantity
11
Monopolistic competition
12
Non-price
competition
14
15
Market segmentation
Products
16
Present
Market
New
Product
Market
penetration
New
Product
development
Market
Diversification
development
17
2000
2014
14
14
11
17
15
10
12
12
Government
Services
11
17
Durables
21
21
17
Consumables
35
24
23
100
100
100
Industrial
Financial
Total
Source: Slowman et. al. (2016), Table 8.2. Based on data from Advertising
Association/WARC, Expenditure Report, AA/ WARK UK Expenditure (2014).
19
in market structure
in product characteristics
Advertising / sales
ratio (%)
Transportation services
26.7
21.1
12.3
0.6
0.4
0.3
Source: Slowman et. al. (2016), Table 8.4. Based on data from Advertising
Association/WARC, 2014E Advertising Ratios and Budgets, Schonfeld and
Associates, Inc. (2015).
21
P2
P1
D2
D1
Q1
Q3
Q2
Q
22
Aims of advertising:
Shifting
flour, etc.
They already have a large or inelastic demand
23
Sales (weekly)
s2
Direct effect
on sales
Sales
s3
s1
Long-term
effect
Sales
Advertising
campaign
t1
t2
t3
t4
t5
Time
24
25
Conclusion
26