a.New car dealerships b.Real estate agents c.Landscapers 4. a.There are often a lot of new car dealerships in most metropolitan areas, and each has a unique location, sells a unique set of vehicles from specific manufacturers or brands, and offers a unique shopping experience. Dealerships try to differen- tiate themselves primarily through their service departments, their hours, their customer service philosophy or their shopping experience. Shopping experience is a big one; it’s becoming more and more common now to find coffee shops, salons, or child care services inside a car dealership! b.There are lots of real estate agents in any market, and they are always clamor- ing for more customers.They differ from one another in their (geographic or demographic) areas of expertise, the company or broker they work for, the relationships they have with other related vendors, and the extra services they provide. Real estate agents work hard trying to steal and retain customers—they send birthday cards, newsletters, and other communications frequently to try to establish a long-term relationship with a homeowner.Solution Solution
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Thinking and Problem Solving 1.As you read in the chapter, the requirements for an industry to be considered monopolistically competitive are that there are many firms and those firms are pro- ducing unique, or differentiated, products. One industry in which we find differen- tiated products is the recording industry. Not only are there many genres of music (iTunes lists almost 50), but within each genre there are countless artists, as well. Over the past few decades, technology has reduced the fixed costs of recording and the marginal costs of distributing music. In 1979, for example, the average studio bill for an album was over $30,000 ($170,000 in today’s dollars). Nowadays, Cowen3e_CH17_Solutions.indd207/04/152:07 PM
Monopolistic Competition and Advertising•CHAPTER 17 with digital recording technology, an artist or band can record an entire album for a few thousand dollars and the album can be distributed at low cost as MP3s on the Internet, with no record store involved. a.What do you expect to happen to the music industry due to the evolution of much cheaper recording technology?What do you expect to happen to the number of recording artists? b.Suppose there are initially only two recording artists in all of the record industry: the Decemberists (an indie rock band) andYo-Yo Ma (a famous cellist). How many MP3s will they each be able to sell?Who would buy MP3s from the Decemberists?What about fromYo-Yo Ma?Will anybody buy MP3s from both?• S-3
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