Chapter 16 - Krugman_CH16_388 8:58 AM Page 388 chapter 1 6...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
>> RECENT BEST - SELLING BOOK TITLED Fast Food Nation offered a fasci- nating if rather negative report on the burgers, pizza, tacos, and fried chicken that make up so much of the mod- ern American diet. According to the book, all fast-food chains produce and deliver their food in pretty much the same way. In particular, a lot of the taste of your fast food—whatever kind of fast food it is—comes from food additives manufactured in New Jersey. But each fast-food provider goes to great lengths to convince you that it has something special to offer. Every- one recognizes Ronald McDonald the clown, a symbol of McDonald’s carefully cultivated image as the place kids love. Rival Wendy’s took a bite out of Mc- Donald’s market share with a little old lady yelling “Where’s the beef?”, a campaign that emphasized Wendy’s somewhat bigger burgers. So how would you describe the fast-food industry? On the one hand, it clearly isn’t a monopoly. When you go to a fast-food court, you have a choice among vendors, and there is real competition between the different burger outlets and between the burgers and Monopolistic Competition and Product Differentiation FAST-FOOD DIFFERENTIATION chapter 388 A What you will learn in this chapter: The meaning of monopolistic competition Why oligopolists and monopolis- tically competitive firms differ- entiate their products How prices and profits are deter- mined in monopolistic competi- tion in the short run and the long run Why monopolistic competition poses a trade-off between lower prices and greater product diversity The economic significance of advertising and brand names 16 Jeff Greenberg/PhotoEdit the fried chicken. On the other hand, in a way each vendor does possess some aspects of a monopoly: at one point McDonald’s had the slogan “Nobody does it like McDonald’s.” That was literally true—though McDonald’s competitors would say that they did it better . In any case, the point is that each fast-food provider offers a product that is differentiated from its rivals’ products. In the fast-food industry, many firms compete to satisfy more or less the same demand—the desire of consumers for something tasty but quick. But each firm offers to satisfy that demand with a dis- tinctive, differentiated product—products that consumers typically view as close but not perfect substitutes. When there are many firms offering competing, differenti- ated products, as there are in the fast-food industry, economists say that the industry is characterized by monopolistic competition . Competing for your tastebuds. Krugman_CH16_388 11/11/04 8:58 AM Page 388
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
The Meaning of Monopolistic Competition Joe manages the Wonderful Wok stand in the food court of a big shopping mall. He offers the only Chinese food there, but there are more than a dozen alternatives, from Bodacious Burgers to Pizza Paradise. When deciding what to charge for a meal, Joe knows that he must take those alternatives into account: even people who nor-
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 05/09/2011 for the course MATH 1105 taught by Professor Kyle during the Fall '10 term at Austral Chile.

Page1 / 18

Chapter 16 - Krugman_CH16_388 8:58 AM Page 388 chapter 1 6...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online