Monopolistic competition had first been identified in the 1930s by Edward Chamberlin and Joan Robinson. Monopolistic competition is a form of imperfect competition with no barriers to entry and many firms. This essay intends to analyse the impact of branding and innovation in a monopolistic coffee market with an analysis of its effects on short and long-run profits. This essay will then discuss how applicable theory is to the real-world with a focus on the competitive advantage gained from instruments such as branding and innovation strategies which aid profits to persist in the long-run.
Firms in a monopolistic market structure can break even, make losses, or achieve supernormal profits in the short-run. Appendix 1 demonstrates potential short-run profits however theoretically in the long-run, only normal profits will be achieved as shown in Appendix 2. The reasoning behind this is if supernormal profits are being acquired in the short-run it will incentivise firms to enter the market who will compete for profits by lowering costs until there are no supernormal profits to be earned, i.e. when the firm breaks even.
In the short-run, there are a fixed number of firms and a monopolistically competitive firm maximizes profit or minimizes losses by producing the quantity corresponding to …show more content…
This essay has discussed that supernormal profits have persisted in the long-run for companies like Starbucks and Costa as they have maintained a competitive advantage from the non-price competition. The likelihood of this continuing is reinforced by imperfect information creating a barrier to entry. Analysis of the effects of branding and strategy in the coffee market in the short and long-run proposes it is accurate that the typical firm may earn normal profits in the long-run if they have not differentiated their product or service. The monopolistic structure is therefore a useful model as it is representative of the typical
Firms in a monopolistic market structure can break even, make losses, or achieve supernormal profits in the short-run. Appendix 1 demonstrates potential short-run profits however theoretically in the long-run, only normal profits will be achieved as shown in Appendix 2. The reasoning behind this is if supernormal profits are being acquired in the short-run it will incentivise firms to enter the market who will compete for profits by lowering costs until there are no supernormal profits to be earned, i.e. when the firm breaks even.
In the short-run, there are a fixed number of firms and a monopolistically competitive firm maximizes profit or minimizes losses by producing the quantity corresponding to …show more content…
This essay has discussed that supernormal profits have persisted in the long-run for companies like Starbucks and Costa as they have maintained a competitive advantage from the non-price competition. The likelihood of this continuing is reinforced by imperfect information creating a barrier to entry. Analysis of the effects of branding and strategy in the coffee market in the short and long-run proposes it is accurate that the typical firm may earn normal profits in the long-run if they have not differentiated their product or service. The monopolistic structure is therefore a useful model as it is representative of the typical