ECON 1201 Lecture Notes - Lecture 21: Spotify, Monopolistic Competition, Marginal Revenue
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ECON 1201 – Lecture 21 – Monopolistic Competition Cont. and Oligopoly
In The Long Run
• Losses will cause exit or profits will cause entry
• All profits would be dissipated
• Average cost would be tangent to demand and optimal output of the good
• If any more companies enter the market, they lose market share
• The demand schedule is shifting in
o Because of more entry
• The demand schedule is also rotating
o Because of the number of substitutes
• People have more choices which drives down prices
How Do They Make Profits?
• Innovation
• Differentiation
• Finding a market niche
• Examples: mobile payment systems, loyalty programs
Whole Foods
• Owned natural and organic market for years, could charge premium prices
• With other grocers entering the marketplace, profits get squeezed in the long run
• Got bought by Amazon
• Gillette also lost profits because of more entrants
Role of Advertising
• Tries to make demand schedule more inelastic
• Increased demand for the goods and differentiating products
• Allows companies to charge higher prices over a longer period of time
• Create a brand name that people identify with
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Document Summary
Econ 1201 lecture 21 monopolistic competition cont. and oligopoly. In the long run: losses will cause exit or profits will cause entry, all profits would be dissipated, average cost would be tangent to demand and optimal output of the good. Innovation: differentiation, finding a market niche, examples: mobile payment systems, loyalty programs. Whole foods: owned natural and organic market for years, could charge premium prices, with other grocers entering the marketplace, profits get squeezed in the long run, got bought by amazon, gillette also lost profits because of more entrants. Role of advertising: tries to make demand schedule more inelastic. Increased demand for the goods and differentiating products: allows companies to charge higher prices over a longer period of time, create a brand name that people identify with. The other side of advertising: provides information to consumers, allows companies to enter, fosters competition in the industry because it allows consumers to distinguish between products.
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