Week 4 Discussion
This week you will be asked as part of Porter’s Five Forces to understand the difference between monopolistic competition and oligopoly. These two market types are in the middle of the range between perfect competition and monopoly. Firms must understand the competitive forces within the market in which they operate because the type of market in which a firm operates determines the number of the forces that erode profit.
Here is some help on each type of market. Also, there is some information on how to measure the degree of monopoly power.
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Monopolistic Competition – definition, diagram, and examples – Economics HelpDefinition of monopolistic competition. Diagrams in short-run and long-run. Examples and limitations of the theory. Monopolistic competition is a market structure that combines elements of monopoly and competitive markets. Economics Help
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Oligopoly – Economics HelpDefinition of oligopoly. Main features. Diagrams and different models of how firms can compete – kinked demand curve, price wars, collusion. Use of game theory and interdependence.Economics Help
For this week’s discussion, the focus will be on examining Porter’s Five Forces is a tool for looking at the pressure on profits. Specifically, how does Porter’s analysis examine the stress on profits from all directions and all dimensions of a firm’s environment? You will be applying this tool by specifically looking at the market structure in which a firm completes. You will need to be able to distinguish an oligopoly from a monopolistic competitive market structure.
You will find help has been provided in the discussion preparation.
The Assignment:
There are two groups of firms below.
Group 1: firms in the retail sector (e.g. Amazon; Wal-Mart; Target; Kohl’s; Sears; Macy’s)
Group 2: firms in the wireless services industry (e.g. Verizon; AT & T; Sprint/T-Mobile) (this about telecommunication services, not about the sale of phones)
For each group determine and explain if the group is monopolistic, competitive or an oligopoly. You need to be specific for both in which market structure the firms operate.
Then choose one of the firms from one group. Using Porter’s analysis; what are the threats to profitability faced by the firm? This would be a great time to expand your research skills by checking out the firm’s investor relations page or by using some of the material from the vast collection of business databases at the Strayer Library.
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