Monopolistic Competition in the Retail Industry
The retail industry is a prime example of the modern version of Chamberlin and Robinson’s model of Monopolistic Competition (Grewal, 441). The retail industry consists of vast markets with different brands and goods of one common goal, to sell their products. To cater to this rapidly changing market many large scale retailers are findings ways to make their product more appealing to the public in hopes of gaining market share over their competition. As prices rise, customers are forced to buy substitutes of well-known brand names or alter their preferences. This results in the phenomenon known as monopolistic competition.
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By advertising lower prices and exposing competitor’s flaws, a company can build a better brand and their product’s reputation. Thirdly, product differentiation. The four common types of product differentiation are physical product differiation, marketing differiation, differiation through distribution, and human capital distribution. In monopolistic competition, companies use color, size, accessibility, performance, and features to differ their product from the competition. Through marketing differentiation, companies change the packaging and labels on their products to make them more appealing to customers. Differentiation through distribution is made possible by offering one-day shipping and selling online instead of just in the store. Human capital distribution is seen through the direct investment in the training of employees to develop skills, customer service and knowledge of the products, which is a leading factor in whether a potential customer will buy your product or a competitors.
In monopolistic competition; however, the retail industry faces that demand is down-ward slopping. There are many firms producing very similar products and consumers must be convinced to buy one good in a market where there are endless substitutes. This has been noted in the closing of many retailer department stores. One way firms attempt to make up for lost profits throughout the year is to offer seasonal discounts. This is based on the elasticity of a good or how elastic or inelastic a good is at the time.
For example, this is a graph showing monopolistic competition during peak season for a good:
This shows that an increase in price will not affect the demand curve initially, as the demand for a product becomes inelastic such as in peak season. The percentage change in price is greater than the percentage change in demand. The consumer surplus is less than it would be during the normal season for a good due to the producer being able to...