• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Economic Analysis

Extracts from this document...

Introduction

A number of national newspapers are offered at a considerable discount at most British university Student Unions. Discuss how the frameworks of monopolistic competition and price discrimination would respectively explain this. Which framework best captures the rationale for this practice? Introduction In this essay, I intend to examine and critically analyse the extent to which the frameworks of monopolistic competition and price discrimination could be applied to the situation of selected national newspapers being offered to university students at significantly discounted prices. Monopolistic competition is one of the four main market structures in an economy along with perfect competition, oligopoly and monopoly. Originating from Edward Chamberlain (1933), the theory of monopolistic competition as a type of market structure, refers to the imperfect competition that takes place among a large amount of firms. Price discrimination is defined as, 'charging different prices to different customers for the same good or service', which 'is possible only if the supplier has some monopoly power, and can identify the customer, and the customer cannot resell the good, or it is expensive to do so' (Black 1997: 363). I will also aim to compare and evaluate which of these two frameworks can best explain the reason for the given setting. I will make these evaluations based on a comprehensive method of analysis, identifying the common features as well as the disparities. Monopolistic Competition This market structure is based on four assumptions. ...read more.

Middle

There are many advantages and disadvantages, both to individual firms and the industry as a whole from the use of price discrimination. One advantage is that firms will have increased revenue and profits, which will enable some to stay in business who may otherwise would have made a loss and allow others to reinvest in research and development and innovation. Also the firm's market share will increase as more consumers that were not initially willing to pay the original price now demand the good or service. An additional advantage is that some consumers will benefit from lower prices. However, other consumers that may require the product more will be forced to pay higher prices, which will lead to a decline in their consumer surplus and cause the firm to become allocatively inefficient as prices become greater than the marginal cost. Another disadvantage of price discrimination is that there may be administration costs that are incurred by the firm in separating the markets. Moreover, extra profits that discriminatory firms receive, may be used to finance predatory pricing so as to create further barriers to the entry of new companies along with increasing inefficiency of such firms due to the lack of competition. Theories Applied to the UK Newspaper Industry The national newspaper industry is widely seen to function in a monopolistically competitive market structure. Primarily, in a sense that the industry is concentrated by a large number of small firms, and also because the market produces a set of heterogeneous products, either through content or product branding. ...read more.

Conclusion

I have therefore endeavoured to examine theoretical and empirical evidence to explain the motivation of such newspaper companies to price discriminate as well as the ability of these firms to do so. Additionally, I have defined both theories and attempted to apply them to the given situation, citing both the similarities and the disparities. As I have mentioned above, both frameworks of monopolistic competition and price discrimination can be applied to the practice of newspapers offering discounts to university student unions to a certain extent. However, I have also provided evidence of how it could be argued that either framework cannot be entirely applied to this situation. Consequently, I have come to the conclusion that monopolistic competition is the framework that best captures the underlying principle of the given setting. I have selected this framework because it is evident that this market structure best explains the newspaper industry due to the following; the newspaper industry contains many firms each producing similar, but slightly differentiated products, each producer can set its price and quantity without affecting the marketplace as a whole, the market has a four-firm concentration ratio of less than 40%, which excludes it from being an oligopoly, newspaper companies are seen to keep prices relatively constant and contend through non-price competition measures such as marketing, advertising and branding and finally, rather than perfect competition, which has a perfectly elastic demand schedule, newspaper companies face a downward sloping demand curve, so firms can raise or lower prices to a degree without major shifts in demand. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our University Degree Miscellaneous section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related University Degree Miscellaneous essays

  1. Personal development Analysis- my experiences

    One thing I did learn is that my problem solving skills may not be as good as what I thought. It may be down to my learning style, but according to mind tools, its take a very theoretical approach whilst being an activist my methods are still very hands on and I prefer to take on activities rather than reflect.

  2. Personal development analysis

    I blame my A level grade on the very late start to my revision schedule, and suffered due to that. I have a tendency to procrastinate and get easily distracted, even as I do this assignment, I have a Firefox page open for Facebook and skysports.

  1. Norexin. Norexin Slim Sculpt is a slimming product offered by Biotech Corporation

    way as the body cannot differentiate between natural or organic and synthetic vitamins. Natural or organic vitamins are simply more expensive RDA for Vitamin E for adults above 14 is 15mg (=22.25 IU)3 2. Niacin (as niacinamide) Niacin has significant benefits on high-density cholesterol and also benefits on low-density cholesterol though effects are less dramatic.

  2. understanding cell structure / tissue types and functions

    The sclera forms a tough, protective outer coating. Some more examples of how all the body systems are linked; The skeletal system is linked to the muscular system (muscles pull the bones at the joints for movement), the circulatory system (erythrocytes are produced in the bone marrow), the nervous system

  1. Management Principles Assignment 1

    Belongingness and Love needs such as work group, family, affection, relationships, etc. 4. Esteem needs such as self-esteem, achievement, mastery, independence, status, dominance, prestige, managerial responsibility, etc. 5. Self-Actualization needs such realising personal potential, self-fulfilment, seeking personal growth and peak experiences.

  2. A reflective analysis of values with respect to equality and the implications of those ...

    It would have been unprofessional to have admitted to this but it would have helped my client had I taken her concerns more seriously. Upon reflection I should have also been mindful that as a women myself my client may have had expectations from me to be more sympathetic, although this can be an area for debate.

  1. Community and Family Studies

    A general observation was made that younger children tended to identify with those who they knew, whereas older children tended to be more wishful and imaginative in terms of whom they would like be. Research methodology 2: Observation/ Case Study of the Simpson's television show From an observation of three

  2. SWOT & PEST ANALYSIS

    As such, airlines that understand that strategic innovations take on these characteristics - rapid initial growth followed by a levelling off - may best combat these disruptions by focusing on and investing their own traditional business model. In this respect, rather than focusing on the disruption, they build on their

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work