Sunday, April 18, 2010
Monopolistic Competition
This week we discussed monopolistic competition and realized that most of the real world markets are monopolistically competitive. An interesting aspect of this market is in the area of product development and marketing. We looked at innovation and differentiation and questioned whether all innovation was really innovative. By keeping up with technology or spending money on advertising a company could increase the value of their product. Looking at a shift of the demand, production costs, and price we saw that this innovation did not always increase the profits of the company. I would wonder how long this would be the case though as if nothing is done to advertise the product or keep up with technology then sales will eventually decrease and production costs will increase. Less profit now could still result in more profit in the long run which shows that this could be a case of making a long term business decision based on short term data.
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Burger King has opted out of innovation. They even advertise that they steal McDonald's breakfast menu items and offer them at lower prices. Seems like they scrapped the research and developement budget.
ReplyDeleteI dont really think that any business ever gives up on innovation. So in that respect I disagree with the post about that. If a firm was to give up on innovation then they are basically preparing to fail and just going to fold and crumble. No business I have seen would purposefully do that. If there has I would love to know of an example.
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