Microeconomics Paper

1246 Words Jun 29th, 2005 5 Pages
Analyzing the Monopolistic Competition of the Retail Industry

Understanding the Terms

Symbol = a code comprised of letters used as a unique identification of the stock
52 week High = the highest price reached during the last 52 weeks
52 week Low = the lowest price reached during the last 52 weeks
Dividend = taxable payment declared by a company's board of directors & given to its shareholders out of the company's current/retained earnings

Dividend Yield = yield a company pays its shareholders in the form of dividends; calculated by the amount of dividends paid per share over the course of the year divided by the stock price

P/E Ratio = (aka the price earnings ratio) most common measure of how
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Each company is on a careful balance of price and cannot exceed the other company's prices beyond what the consumer sees as reasonable. Moreover, firms can enter and exit easily because there are no tariffs and resources are plentiful. This is the competitive side of monopolistic competition.
II. "…some degree of market power is achieved by firms producing differentiated products…"

However the retail firm is also monopolistic because of the added aspect that each company does have some degree of market power through their differentiation of products. One way firms differentiate themselves is through the consumer and the way they fashion their products. The consumer determines the success/failure of a company. A major problem firms face is how to accommodate to the changing preferences of the consumer. Guess was at one point similar to Levi's, a brand of jeans limited to the department store. However in 2002, Guess signed on Marciano, a prominent high-end European designer, and sales have boomed since. Now, Guess is a well-known, popular brand among teenagers and stocks have risen considerably within the last ten years.
Another huge component of differentiation is the marketing industry. 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…

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