BMGT 495 Lecture Notes - Lecture 3: Monopolistic Competition, Perfect Competition, Jetblue
11 Oct 2018
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Department
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Professor
The SCP Paradigm
• Structure-Conduct-Performance paradigm in economics
• Idea: performance of firms within an industry is dependent upon the conduct(strategy) of
those firms, which, in turn, is dependent on the market structure
• Porter’s five is a way to investigate one aspect of a structure
• Structure/Industry continues to be important but Firm strategy is just as if not more
important
Industry Structure
• Rivalry Among Existing Competitors
• Perfect Competition
o Large # competitors, Homogenous Products, Low cost to entry/exit
o Firms try their best to avoid being locked into a perfect competition industry,
hence differentiate
o Types of businesses in perfect competition are often with less human capital and
knowledge value
• Monopolistic Competition
o Large # competitors, Heterogeneous products, low cost to entry/exit
• Oligopoly
o Small # competitors
• Monopoly
o Not easy to get a monopoly market either
▪ Monopoly profits draw more entry thereby increasing competitive
pressure
o Ambiguous role of government
▪ Protect monopoly when it’s for greater good (e.g. patent protection,
natural monopoly)
▪ Break monopoly when it restricts market efficiency
Typology of Market Structure
• Critical: Factors that switch a perfectly competitive market to monopoly/oligopoly market
– will bring in maximum profit
• Monopoly market yields highest level of profit and market with perfect competition
yields lowest level of profit
• Appealing (threatening) market structure doesn’t last long
• Other than structure, firm’s ability to innovate & change their external environment also
becomes important
• External environment is not the end
JetBlue – Airline Industry
• Number of competitors is high
• Aircrafts are costly and difficult to own
• Some barriers to entry
o Buying the aircrafts
o Flight slots, buying JFK slots
o FAA regulations must be followed
• Identifying underserved routes
• Regulatory factor
