H&M is one of the largest suppliers of fashion clothes on the Danish market, along with Bestseller and IC Company. The Danish fashion market is a Monopolistic Competition market, and according to the theory, there is free entry barriers (new firms are free to set up a new business, if they wanted to). This is not the case in real life though, since the initial capital can be an issue for some people, the manager simply doesn’t have enough money to set up their company, which can be a barrier. H&M is differentiating from its competitors, by cooperating with famous designers to make unique clothing lines. Working with a famous designer has also made it possible to reach a broader audience, since there is more “prestige” in wearing a H&M made by a designer like Matthew Williamson than just a “regular” H&M and since it is in fact a H&M, the price is much lower than it would have been if it was one of Matthew Williamsons own clothing lines. H&M has also made themselves one of the major actors on the global market by operating from 1700 stores in 33 different countries – and still expanding! This has given the opportunity to see the different styles of clothing in different countries. H&M expanded to Japan in 2008, where there is a great interest in fashion. The Japanese style is much different than the most common styles in the western world, and H&M therefore had a possibility to send some of their Japanese collections on the western market and vice versa – with huge success.
As I’ve just accounted for, H&M is operating in a monopolistic competition market. To understand how the monopolistic market works, I will tell the principles through two different models. The model for the short run and the long run. What we see here, is the model of the short run. If we look at the graph we know that profits are maximized at the point where marginal cost (MC) = marginal revenue (MR). If we look at that point, we can also see that the average cost...
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