Analysis of Sporstwear

Case I. ambition HITS SPORTSWEAR GROUPS PROFIT 1. Explain why the activewear industry in JJB operates may be considered an example of monopolistic controversy. fabric Intelligence Reports in 2007 indicate that the UK sportswear commercialize was estimated to have a value of ? 3. 65 bn (US$6. 72 bn) in 2006. The reason behind is that, buy levels ar mellowed. Sportswear items argon purchased by almost 90% of lot under 35 years of age, and by 76% of the population as a whole according to the research.UK sportswear industry cannister be considered a monopolistic competition in the sense that there be only about four leading sportswear retailers in the get together Kingdom JJB Sports, Blacks Leisure. John David Group and Sports World. The dominant player in the mart is JJB sportswear given the number of outlets and stores it operates 450 stores, the closest is JDB by around three hundred stores. Given the wide gap, JJB at slightly point has govern of the control of the enti re commercialize sales and distribution and posed a obstacle of entry. pic Illustration from http//www. ized. co. uk/current/leisure/2004_5/111004_map. htm Given the above, characteristic of a monopolistic competition exist in this industry. The characteristic of monopolistic market is make headway expanded on Question 2. In this case of UK sportswear market structure is a pure monopoly. there are quite a number of sellers in the industry and therefore many close convergence substitutes in existence but neverthe slight slosheds like JJB retain some market power. 2. How does the monopolistic market structure exemplified in the article discord from perfect competition?Below are two comparable placeds that score monopolistic market from perfect competition Perfect competition monopolistic competition Many sellers Single seller distributively buckram is relatively small compared to the overall size of the Monopoly exists when a specific sloshed has fit market/indust ry market.This provides assurance that no single firm can gain control control over a particular harvest-tide or service and able to determine over price or quantity of the entire market or industry. If one firm importantly the terms of quality and price by which all buyers get out decides to attach its output or shut production, the market is have access to similar to JJB case un shanghaied. The market price does non potpourri and there is no distinct change in the quantity purchased or exchanged in the industry. Identical / undiversified products sold by all firms Unique product Each firm in a abruptly war-ridden market sells an identical For a monopoly to exits, there should be a unique product. Monopoly product, they are not perfectly the resembling but the buyers will not lacks in providing a executable substitute goods. distinguish any difference.Each belligerent firm produces a good that is a perfect substitute for the product of every other(a) firm in the uniform industry. monetary value Taker As a expiration not one can control market price.If one tries to shiver a higher price, then buyers would immediately switch to other cheaper cost Maker- competitor goods that are perfect substitutes. Since there is no competition, prices are set to maximize profits. However in order to increase sales, prices are cut by the firm. Low-Entry/Exit Barriers High Barriers of Entry/Exit There are no restrictions, government regulations. Each can do a There is an assurance of sufficient control and dominant presence due start-up follow according to their own resources as great as their outputto a number of assorted reasons for barriers to entry (a) required can perfectly contend and match competitors quality and price. government license or franchise as monopoly is often times regulated (b) existing patents and copyrights and (c) high start-up comprise needed Perfect Information Specialized Information As mentioned in point 2, one firm cannot sell its good at a higher Commonly characterized by control of schooling. Monopolistic firm price than other firms.This follows that buyers are completely awareheld exclusively information like a secret recipe, formula or unique of sellers prices. Each firm besides has complete information about the method or technology or production which is often protected by prices aerated by other sellers. This gist that it would be unlikely patents, copyrights, or trademarks. This in like manner creates legal barriers for them to charge less than the current market price. Perfect to entry. acquaintance withal extends to technology.All perfectly private-enterprise(a) firms have access to the same production techniques. There is a remote possibility that a competitive firm can produce its output faster, better, or cheaper because of special cognition of information. Nicholson, Walter (2005) pic as well, For a competitive firm, pri ce equals bare(a) cost. P = MR = MC For a monopoly firm, price exceeds marginal cost. P MR = MC 3. In the long take up, are firms better off operating in monopolistic competition or in perfectly competitive markets? Long-run effects of increasing competition in the monopolistically competitive industry In the long run, a monopolistically competitive firm will make zero economic profit. However, due to govern in the market it can most of the time raises prices without losing customers but to distract new entrants, it can lower its prices and leverage on customer loyalty.This means that a firm making profits in the short run will break even in the long run because expect will decrease and average total cost will increase. Also means that a monopolistic firms demand curve is downward sloping, in contrast to perfect competition, which has a perfectly elastic demand schedule. learn illustration in item 2. Long-run position of a firm in a perfectly competitive industry In the long run positive profit can not be keep up as there is always arrival of new firms or elaboration of existing competitive firms.This causes the demand curve of individual firm to happy chance downward and prices to go downward as well. This means that at the same time the average revenue and marginal revenue curve also points downward. Bottom line, in the long run similar to monopolistically competitive industry, the firms in perfect competition in the long run will also make a normal profit. The horizontal demand curve will touch its average total cost curve at its net point Conclusion When the long-run average cost exceeds long-run marginal cost, JJBs output is not at the minimum point on long-run average cost curve.JJB can sell sportswear at a lower price in the long run and by taking advantage of economies of scale, such as price discounts. Therefore is not much difference between monopolistically competitive firms vs. Long-run position of a firm in a perfectly competitive indus try. The difference lies mainly on the product (homogenous vs. unique) and influence in the market. 4. JJB states that their profit margins were hit by a vigorous promotional campaign launched in October and a Christmas/ overbold Year sale.Illustrate how the promotional campaign is likely to affect their profit margins. Before the promotional campaign pic Similar to a competitive firm, a monopoly maximizes profit by producing the quantity at which marginal cost and marginal revenue are equal Above graph is the scenario of JJB former to price promotional campaign to ward off growing competition. after the promotional price campaign pic During the promotional campaign, the price maybe less than average cost causing the decline in JBBs profit. This gives no incentive for JJB to reduce cost.References McTaggart, Findlay and Parkin (2007), Economics (5th ed. ) Pearson Education Australia Publisher Nicholson, Walter (2005) Microeconomic hypothesis Basic Principles and Extensions 9t h edition, Ceneage Learning India Pvt Ltd Publisher PERFECT COMPETITION, CHARACTERISTICS, AmosWEB Encyclonomic WEB*pedia, Online, Available http//www. AmosWEB. com, AmosWEB LLC, 2000-2009. Accessed kinfolk 12, 2009 MONOPOLY, CHARACTERISTICS, AmosWEB Encyclonomic WEB*pedia, Online, Available http//www. AmosWEB. com, AmosWEB LLC, 2000-2009. Accessed September 12, 2009 Antony Davies & Thomas Cline (2005). A Consumer Behavior show up to Modeling Monopolistic Competition. Journal of Economic Psychology 26 797826 pic Average Total cost e d pic c marginal Revenue marginal cost Demand Revenue Costs and 0 QMAX Quantity Total cost Average cost Demand Price 0 Quantity of Output Price 0 Monopolists Demand turn out Competitive Firms Demand Curve Demand Quantity of Output Average total cost Marginal cost Demand Price Loss 0 Quantity Price Promotion Total cost Average Profit