Please help me respond to these 2 posts not only agreeing with them but making suggestions or asking questions

1. Class,

My understanding of monopolistic competition is having multiple sellers in a market that produce and sell similar products that aren't completely identical. However, one seller in the market has a strong competitive advantage over the others allowing them to have leverage over their market. On example of a firm operating in the monopolistic competition structure is McDonalds. There are many fast food chains in the market that are regionally located but McDonalds, being one of the biggest and well know globally, has the ability to leverage the fast food market and impact market behavior. This market structure determines prices based off of the other competitors in the market. This is because their goods are similar and can replace one another. McDonalds would need to price their goods similar to other fast food chains like Burger King, since pricing them too high would cause consumers to go another restaurant, providing a similar good for a lower price.

My understanding of the oligopoly market structure is when there is a few number of major sellers of a good in a market. In this market there is almost no difference between the products sold by each seller. The biggest differentiating factor is branding. In this market structure, any move made by one of the sellers can have a huge impact on the market as a whole. An example of a firm in the oligopoly market structure could be an airline like American Airlines. The reason behind this is because there are a limited amount of airline services in the market, and the only clear difference between them is their name on the side of the planes. Also, if American Airlines chose to pull out of the Airline market, it would change the market drastically by giving more business to its competition. This market structure influences price through its product differentiation. For example, if an airline had more amenities or only serviced a specific geographical area, they could set their prices however they want since there is no other competitor that can match their service.

-Hunter

2. The book states that monopolistic competition is a model characterized by many firms producing similar but differentiated products in a market with easy entry and exit (276). An example of a monopolistically competitive market could be e-commerce stores. Say 25 firms sell socks online via a website. These firms exist with an easy entry and exit cost as they simply manage a website, wholesale purchases of socks, and shipping orders. They all sell extremely similar products, with differences existing in only color/sizing options, prices, and brand image. These firms compete against each other in the same market, and no specific firm can singlehandedly set market prices. These firms may determine prices in a variety of ways. Firstly, firms in a monopolistic competition model must consider that they will deal with a downward-sloping demand curve. The competitive nature means that by raising prices they will most likely sell fewer units and vice versa. New firms can quickly leave and enter the marketplace, affecting how prices need to be set. Changes in demand can also affect pricing. When the demand curve shifts to the right, firms can sell more units, but this may inspire more firms to start in the competitive market. When the demand curve shifts to the left, firms will sell fewer units, and fewer firms will enter the market. When your friend's sock company is making 10k a week in sales, it only seems obvious that you should also sell socks, but when he complains about breaking even, selling socks probably never crosses your mind. Somewhere in between these 2 extremes, the market finds a long-run equilibrium where there is no incentive for firms to either enter or leave.

The book states that an oligopoly is a "Situation in which a market is dominated by a few firms, each of which recognizes that its own actions will produce a response from its rivals and that those responses will affect it" (283). An example of an oligopoly market would be Mcdonald's, Burger King, and Wendy's. These 3 firms dominate the entire fast-food chain market in America (in this case obviously the fast-food oligopoly is larger than just these 3 firms but bear with me). To find an oligopoly market, one can use the concentration ratio. The concentration ratio is the percentage of output accounted for by the largest firms in an industry (283). The higher the percentage of output for each firm in a market means that each firm's behavior in the market increasingly affects other firms. Each decision on pricing, food quality/quantity, marketing, branding, etc. made will have an effect on the other firms. Then the other firm's responses to these changes will inversely have an effect on the other firms and so on, and the larger the market share a firm has, the more its actions are noticed. This codependent relationship of oligopoly firms can sometimes cause collusion between firms. Overt collusion is when firms openly agree to set prices or other variables to help each other maintain profits. Cartel collusion involves agreeing to these prices behind closed doors to continue to monopolize a market, which can be illegal. Lastly, there is tacit collusion, in which firms have an unspoken agreement to act a certain way, without stepping on each other's toes. Oligopoly markets have to have more tact when considering pricing. If McDonald's offered a 3-dollar Big Mac to attract sales, it could have to expect its competitors to offer a similar discount. In this case, both firms could end up with a similar number of sales, but now they both have fewer profits. While the market is defined by a small handful of players, each player is now directly more competitive with the other's decisions.