week 4 discussion and response

For this week’s discussion, the focus will be on examining Porter’s Five Forces as a tool for looking at the pressure on profits. Specifically, how does Porter’s analysis examine the stress on profits from all directions and all dimensions of a firm’s environment? You will be applying this tool by specifically looking at the market structure in which a firm completes. You will need to be able to distinguish an oligopoly from a monopolistic competitive market structure.

Instructions:

There are two groups of firms below.

• Group 1: firms in the retail sector (e.g. Amazon; Wal-Mart; Target; Kohl’s; Sears; Macy’s)
• Group 2: firms in the wireless services industry (e.g. Verizon; AT & T; Sprint/T-Mobile) (this about telecommunication services, not about the sale of phones)

For each group determine and explain if the group is monopolistic competitive or an oligopoly. You need to specific for both in which market structure the firms operate.

Then choose one of the firms from one group. Using a Porter’s analysis what are the threat to profitability? This would be a great time to expand your research skills by checking out the firm’s investor relations page. Use the Research Hub. Go to the ECO550 Library landing page and if you need help, Ask the Librarian to help you find the investor relations page.

Note: In your discussion posts for ECO550, do not rely on Wikipedia, Investopedia, or any similar website as a reference.

To earn full credit you need one direct response to the questions asked and at least on reply to another post.

Dr Isley’s Discussion Starter

In this discussion we are really examining the degree of monopoly power in a market. There are no monopolies in the cases you are presented, but there are differing degrees of monopoly power. That is the distinction that one is making when determining whether firms operate in a monopolistic competitive environment or an oligopoly.

To navigate this discussion it is very important to be precise in the use of terminology. Like any discipline economics involved making precise distinctions. A firm that is monopolistic competitive, is not a monopoly and cannot be said to be ‘monopolistic.’ The term monopoly means precisely what is say, one and only one firm in a market producing with no close substitutes available and high barriers to entry.

A duopoly, we will look at duopoly behavior in week 6, is a market in which there are two firms competing and they produce similar products. Oligopolies are a direct extension of this duopoly market, but there are a few firms that compete and they sell similar products. In an oligopoly there are significant barriers to entry.

Monopolistic competitive markets have lots of firms all of which produce similar products and there are much lower barriers to entry than in an oligopoly.

There are two factors needed to determine market structure, number of firms and the degree of barriers of entry. In your discussion of the groups presented, try to address both. I have added two very helpful videos to help you with this discussion.

If you have question, let’s talk.