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Mentor- Prof. Deepika M G Team members: Mahesh Guleria Pallab Misra Manohar Shetty Milind p m Saquib Kalam Mayur Somani

Economics Ppt

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Page 1: Economics Ppt

Mentor- Prof. Deepika M G

Team members:

Mahesh Guleria Pallab Misra

Manohar Shetty

Milind p m Saquib Kalam

Mayur Somani

Page 2: Economics Ppt

Monopolistic competition is a market structure in which:

A large number of independent firms compete. Each firm produces a differentiated product. Firms compete on product quality, price, and

marketing. Firms are free to enter and exit.

Page 3: Economics Ppt

Large Number of Firms Like perfect competition, the market has a

large number of firms. Three implications are:

Small market share

No market dominance

Collusion impossible

Page 4: Economics Ppt

Product Differentation Making a product that is slightly different

from the products of competing firms.

A differentiated product has close substitutes but it does not have perfect substitutes.

When the price of one firm’s product rises, the quantity demanded of that firm’s product decreases.

Page 5: Economics Ppt

Competing on Quality, Price, and Marketing Quality Design, reliability, service, ease of access

to the product.

Price A downward sloping demand curve.

Marketing Advertising and packaging

Page 6: Economics Ppt

Entry and Exit No barriers to entry. A firm cannot make economic profit in the

long run.

Page 7: Economics Ppt

Identifying Monopolistic Competition Two indexes:

The four-firm concentration ratio The Herfindahl-Hirschman Index

Page 8: Economics Ppt

How, given its costs and the demand for its jeans, does Tommy Hilfiger decide the quantity of jeans to produce and the price at which to sell them?

The Firm’s Profit-Maximizing Decision The firm in monopolistic competition makes

its output and price decision just like a monopoly firm does.

Figure on the next slide illustrates this decision.

Page 9: Economics Ppt

1. Profit is maximized when MR = MC

3. The profit-maximizing price is $75 per pair.

4. The firm makes an economic profit of $6,250 a day.

2. The profit-maximizing output is 125 pairs of Tommy jeans per day.

ATC is $25 per pair, so

Page 10: Economics Ppt

Profit Maximizing Might Be Loss Minimizing Some firms in monopolistic competition

have a tough time making a profit. A burst of entry into an industry can limit

the demand for each firm’s own product. Figure on the next slide illustrates a firm

incurring a loss in the short run.

Page 11: Economics Ppt

1. Loss minimized when MC = MR

3. The price is $40 per month, which is less than ATC.

4. The firm incurs an economic loss.

2. The loss-minimizing output is 40,000 customers.

Page 12: Economics Ppt

Is Monopolistic Competition Efficient Efficiency requires marginal benefit to equal

marginal cost. In monopolistic competition, price exceeds

marginal cost, which is an indicator of inefficiency. Making the Relevant Comparison Price exceeds marginal cost because of product

differentiation. But product variety is valued. The Bottom Line The bottom line is ambiguous. But compared to

the alternative, monopolistic competition looks efficient.

Page 13: Economics Ppt

Innovation and Product Development Wherever economic profits are earned,

imitators emerge. To maintain economic profit, a firm must

seek out new products. Cost Versus Benefit of Product

Innovation The firm must balance the cost and benefit

at the margin.

Page 14: Economics Ppt

Advertising Firms in monopolistic competition spend a

large amount on advertising and packaging their products.

Marketing Expenditures A large proportion of the prices that we

pay cover the cost of selling a good.

Page 15: Economics Ppt

Selling Costs and Total Costs Advertising expenditures increase the costs

of a monopolistically competitive firm above those of a perfectly competitive firm or a monopoly.

Advertising costs are fixed costs. Advertising costs per unit decrease as

production increases. Figure on the next slide illustrates the

effects of selling costs on total cost.

Page 16: Economics Ppt

1. When advertising costs are added to . . .

2. … the average total cost of production, …

3. … average total cost increases by a greater amount at small outputs than at large outputs.

Page 17: Economics Ppt

Surf was launched in 1959 by HUL. A family brand with tough stain

removal and caring image. International to Ultra to Excel Surf Excel is available in 4 variants:

Surf Excel Blue Surf Excel Quick Wash Surf Excel Automatic Surf Excel Detergent Bar

Page 18: Economics Ppt

Ariel was introduced in India in 1991 by P&G.

Ariel contains unique Fragrance in detergents with new technology based detergent

Ariel is available in 3 variants: Ariel Fresh Clean Ariel Spring Clean Ariel Front-O-Mat

Page 19: Economics Ppt

SURF EXCEL ARIEL

To continue market leadership

37.8% in Indian Market  

Approaching New Markets

Launching Product Extensions

Maintain Brand Loyalty

To increase market share

7.7% P&G in Indian Market

Switch Consumers from Existing Brands in the present Market

Product Innovation Increase Brand

Loyalty

Page 20: Economics Ppt

SIZE SURF EXCEL

QUICK WASH

SURF EXCEL

BLUE

SURF EXCEL

AUTOMATIC

SACHET Rs.2/- Rs.2/- -

200gm Rs.23/- Rs.20/- -

500gm Rs.56 Rs.41 Rs.80/-

1kg Rs.109/- - Rs.155/-

Page 21: Economics Ppt

SIZE ARIEL FRESH

CLEAN

ARIEL SPRING

CLEAN

ARIEL

FRONTO-MAT

Sachet Rs.2/- Rs.2/- -

200gm Rs.26/- Rs.26/- -

500gm Rs.55/- Rs.55/- Rs.80/-

1kg Rs.107/- Rs.107/- Rs.155/-

Page 22: Economics Ppt

Major Players HUL ( blue, Quick wash, Automatic) Nirma P&G ( Tide, Ariel) Henkel India (Mir, persil, porwall,

vernel, purex,henko) Reckitt Benckiser ( Varnish)

Page 23: Economics Ppt

Cross Elasticity of the demand is defined as the ratio of the percentage change in the demand for one good to the percentage change in the price of some other good.

Substitute goods: Tide, Rin, ghadi etc.

Cross Elasticity will be positive in this case

Complement goods: detergent cake, liquid soap Elasticity is always negative.

Page 24: Economics Ppt

The Herfindhahl-Hirschman Index (HHI) It is the sum of squares of market share of each

company in the industry. H = s1

2+s22+…………….+sn

2

H= Herfindhahls index S1,S2……………Sn are market share of each company For detergent industry(in our case) H = (37.8) 2 + (7.7)2 + (3.7)2 + (1.5)2 + (.26)2 =

1504.15 {as market share of other companies is almost

negligible in the industry}

Page 25: Economics Ppt

The four-firm concentration ratio It is a sum of market share of top 4 firms in the

industry For detergent industry(in our case) ; Surf Excel : 37.8% Ariel : 7.7% Henko : 2.9.% Nirma : 1.14% Total : 48.74 Conclusion : As 4 firm’s concentration ratio is

less than 50%,So this let us to conclude that Detergent industry has a Monopolistic market.

Page 26: Economics Ppt

Surf Experienced Player Competitive Advantage with well laid

distribution and retail network Innovative advertising approaches Willingness to venture out with new variants

Page 27: Economics Ppt

Ariel Strong first mover advantage in the Pricing

War Entrenched firmly in minds on basis of

superior cleaning quality Need to bring out new variants focus on aggressive advertising important

Page 28: Economics Ppt

So in the monopolistic form of competition the firm doesn’t have price war like in perfect competition, in this form of competition there exist product differentiation firms compete among themselves by differentiation their products and to promote their product they incur huge selling cost in the form of:

Advertising Promotion Packaging Design price 

Page 29: Economics Ppt