Monopolistic Competition in the Retail Industry Essay

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Monopolistic Competition in the Retail Industry Defining the Market The retail industry is comprised of thousands of different brands and companies. However each is defined by its quality of make and materials used. Abercrombie & Fitch, Timberland, and Guess are all well-known and respected brand names. However if prices were to exceed what people are willing to pay, then the consumers would alter their preferences and buy from another brand. Therefore we are dealing with a monopolistic competition. Monopolistic competition is often defined as: a common form of industry structure characterized by a large number of firms, none of which can influence market price by virtue of size alone; some degree of market power is achieved by…show more content…
Lately the retail industry has been using celebrity endorsement as an effective way to increase sales. Paris Hilton is the spokeswoman for Guess while many black, male celebrities are seen sporting Timberlands. Timberland and Guess also make extensive use of magazine advertisements. Abercrombie & Fitch has promoted itself in a radical way. Never featured on magazine advertisements or on TV commercials, Abercrombie has been established since the 1800?s and has spread itself through word of mouth and is now the premier clothesline for casual wear among American youth. It is in fact the #1 demanded clothing line on Ebay as well. III. Strategies for making profit : Short run All firms which are monopolistically competitive must examine short-run and long-run strategies. In order to maximize profits, all firms, regardless of their market structure must produce to the point where marginal revenue equals marginal costs. These costs refer to economic costs (which include sunk, accounting, and opportunity costs). Monopolistically competitive firms have a downward sloping demand curve because they are price makers, yet because prices are constricted by the demand of the consumers. As mentioned before, the market structure follows both perfectly competitive firms and monopoly forms of structure. Short-run, the industry functions like a monopoly while in the long-run, the industry functions more like a competitive firm.
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