Monopolistic Competition

This week we shall look at Monopolistic Competition.  This is where you, as a consumer, spend most of your time.  In Monopolistic Competition, there are many companies selling similar but not identical products.  Put differently, the goods are close, but not perfect substitutes.

Because of the relative ease of substitution, companies often compete by advertising, services (for stores), brand names, brand loyalty and product differentiation more than by price.  Thus, prices of competing products tend to be close, but not identical as they are in Perfect Competition.

Since this market is where you – as a consumer – spend most of your time and a lot of your money, this week you are going to look at this market in action in your daily life.  When you go shopping this week, pay close attention to product prices and what information they tell you about how the products compete.

A grocery store is a good example.  Look at the soda aisle and by viewing the prices and the product locations on the shelves, which products are close substitutes, sufficiently differentiated that they have brand loyalty (i.e., a higher price), etc.  Do the same with canned vegetables.  Or undertake the same observational experiment in another type of store you regularly frequent.

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Assignment Summary

1.     Watch the video above and under the Week 4 Videos, watch all videos.

2.     Then go to a store, as discussed above, and observe. Observation is a well-established method of real world research. It will probably be easier and perhaps more informative if you pick on one product line to observe and observe by brand name. In particular, look for:

a)     product prices,

b)     product packaging (design, colors, logos, etc.); and,

c)     product shelve placement relative to other similar products.

3.     Based on what you observe can you identify:

a)     which products/brand names compete most closely with each other? Are they placed close to each other on the shelves or far apart?

b)     which products/brand names are aimed at cost conscious consumers? Where are these on the store shelves for grocery stores?

c)     which are aimed at higher end consumers? Where are these on the store shelves for grocery stores?

d)     which products/brand names have a narrower market and command brand loyalty? This one could be tricky to figure out.

4.     Share what you find with the class on the discussion board.

a)     What do you think you have learned from this activity?

b)     What have you learned about monopolistic competition?

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