1. To what extent is the market for MP3 players an example of monopolistic competition? Show using diagrams the effects on the Apple iPod of increased competition from other firms successfully entering the market.
The first Mp3 player was launched in the market in the late 90’s (Pham-Gia,2009). However it was due to the emergence of the Apple iPod in the Mp3 player industry in October 2001 which changed the niche market into a booming market. Since then it has been a large and fast growing market with new firms entering and introducing innovative products to capitalize on the demand created for this product. In this essay we will analyse the market for Mp3 players. Part 1 of the essay deals with the monopolistic competitiveness of the Mp3 player market, where we will analyse the characteristics of the market and determine to what extent it is monopolistically competitive. Part 2 of this essay analyses the influence increasing competition has had on the Apple iPod. Is the market for MP3 players an example of Monopolistic Competition? According to the theory proposed by Edward Chamberlin in 1933 Monopolistic competition is a form imperfect competition which contains elements of both perfect competition and monopoly. This form of market structure arises when: * There are a large number of firms operating in the market. * The products sold by each firm differ from each other and are not prefect substitutes. * Low barriers to enter and exit the market.
While analyzing the market structure of Mp3 players it is evident that it displays characteristics of a monopolistically competitive market such as firstly the number of firms operating in this market is large, as per the data obtained from amazon.com it sells more than 300 different makes of Mp3 players and the companies producing them range from large global firms to small firms which are not very well renowned hence the existence of a pure...