Case I. COMPETITION HITS SPORTSWEAR GROUP’S PROFIT
1. Explain why the sportswear industry in JJB operates may be considered an example of monopolistic competition.
Textile Intelligence Reports in 2007 indicate that the UK sportswear market was estimated to have a value of £3.65 bn (US$6.72 bn) in 2006. The reason behind is that, purchase levels are high. Sportswear items are purchased by almost 90% of people under 35 years of age, and by 76% of the population as a whole according to the research.
UK sportswear industry can be considered a monopolistic competition in the sense that there are only about four leading sportswear retailers in the United Kingdom: JJB Sports, Blacks Leisure. John David Group and Sports World.
The dominant player in the market is JJB sportswear given the number of outlets and stores it operates 450 stores, the closest is JDB by around 300 stores. Given the wide gap, JJB at some point has control of the control of the entire market sales and distribution and posed a barrier of entry.
Illustration from: http://www.bized.co.uk/current/leisure/2004_5/111004_map.htm
Given the above, characteristic of a monopolistic competition exist in this industry. The characteristic of monopolistic market is further expanded on Question 2.
In this case of UK sportswear market structure is a pure monopoly. There are quite a number of sellers in the industry and therefore many close product substitutes in existence but nevertheless firms like JJB retain some market power. 2. How does the monopolistic market structure exemplified in the article differ from perfect competition?
Below are two comparable sets that differentiate monopolistic market from perfect competition:
|Perfect competition |Monopolistic competition | |Many sellers – |Single seller - | |Each firm is relatively small compared to the overall size of the |Monopoly exists when a specific firm has sufficient market/industry | |market. This provides assurance that no single firm can gain control |control over a particular product or service and able to determine | |over price or quantity of the entire market or industry. If one firm |significantly the terms of quality and price by which all buyers will | |decides to increase its output or shut production, the market is |have access to [similar to JJB case] | |unaffected. The market price does not change and there is no distinct | | |change in the quantity purchased or exchanged in the industry. | | |Identical / “homogeneous” products sold by all firms – |Unique product – | |Each firm in a perfectly competitive market sells an identical |For a monopoly to exits, there should be a unique product. Monopoly | |product, they are not perfectly the same but the buyers will not |lacks in providing a practicable substitute goods. | |distinguish any difference. Each competitive firm produces a good that| | |is a perfect substitute for the product of every other firm in the | | |same industry. | | |Price Taker - | | |As a result not one can control market price. If one tries to charge...
References: McTaggart, Findlay and Parkin (2007), Economics (5th ed.) Pearson Education Australia Publisher
Nicholson, Walter (2005) Microeconomic Theory: Basic Principles and Extensions 9th edition, Ceneage Learning India Pvt Ltd Publisher
Antony Davies & Thomas Cline (2005). "A Consumer Behavior Approach to Modeling Monopolistic Competition". Journal of Economic Psychology 26: 797–826
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