Malcolm Gladwell

Malcolm Gladwell spoke at a conference in 2006 about differentiation of products. He spoke of a man, Howard Moskowitz, who asserted the notion that food companies need not find the “perfect Pepsi” but the “perfect Pepsis.” Moskowitz meant that the companies should not search for the perfect Pepsi that will satisfy everyone a little bit; instead, companies should create a range of products to satisfy a larger amount of customers. Not only would a larger amount of people be pleased, they would be more pleased with a Pepsi catered to them, instead of a Pepsi catered to the entire population. However, no one believed Moskowitz’s ideas until finally Prego hired him. This man revolutionized the spaghetti sauce industry. Before him, there was only one type of spaghetti sauce. After being hired by Prego, then Ragu, these spaghetti sauce companies decided to go for variety. Currently Ragu has 36 varieties of spaghetti sauce.

            Mr. Campbell asked us to relate this video to what we’re learning in economics. Companies other than spaghetti sauce in this same way in order to try to win consumers. Companies selling basically the same product try to distinguish themselves from other producers. Companies use a tool called product differentiation to make their product more appealing. When Prego wanted to distinguish themselves from Ragu, they hired Moskowitz to make their product more appealing to the customers. Furthermore, if the two products have very similar prices, consumers have to decide based solely on the product, which is why companies use product differentiation.

            The monopolistic competition market requires that companies compete over characteristics other than price. In a monopolistic competition, producers have very similar products, just as in the spaghetti sauce industry. Companies must, therefore, compete over something other than price. Producers may make their product seem better, easier to use, more environmentally friendly, etc. Product differentiation allows the consumer to better make a decision between similar products. This method of product differentiation is very important in the monopolistic competition market.

Antitrust Legislation

Mr. Campbell asked us to create a game involving certain Antitrust laws to help us learn them. Tara's Antitrust Legislation Flash Cards

Types of Monopolies

Mr. Campbell asked us to give a real or make believe example of each type of monopoly.

Natural Monopoly- Distribution of water/gas.

Gov't Monopoly- When the US was being created, mail was a government run company.

Technological Monopoly- Microsoft Windows

Geographical Monopoly- One train station in a small town.

OPEC Cartel

OPEC is a global organization dedicated to stability in and shared control of the petroleum markets. OPEC stands for Organization of the Petroleum Exporting Countries and is a well-known cartel in modern society. Twelve countries are members of OPEC. In order to be a member, the country must be a big exporter of petroleum. These countries work together to keep competition out of the oil industry in order to keep the prices high. Everyone who pays for gas would benefit from this cartel being broken up because with the countries no longer working together to keep the price high, they would be forced to compete for buyers, which would drive the price for oil down as the countries try to undercut each other.

Eight Things I Learned

What I learned from taking 3 quizzes:

1.      In perfect competition, the many buyers and sellers must act independently. Otherwise, a group of buyers or sellers acting together could influence prices.

2.      Under perfect competition, sellers offer identical products; this way buyers make purchasing decisions primarily on price.

3.      If there are any barriers to entry in a market, sellers cannot compete easily and fully. Barriers to entry are factors that make it difficult for sellers to enter or exit a market.

4.      The main goal of product differentiation and nonprice competition is to increase profits. If a seller can increase demand for its product, the market price may increase, resulting in greater profits.

5.      Oligopoly is the most common noncompetitive market in the United States. An oligopoly is a market structure in which a few large sellers control most of the production of a good or service

6.      Interdependent Pricing- being responsive to or dependent on the pricing actions of competitors

7.      Under price leadership one of the largest sellers takes the lead by setting a price.

8.      A cartel is a group of companies openly organized to set prices. Cartels are illegal in the US.

Five Things I Purchased

Ok so the first thing I bought on black Friday was (1) gas; the thing teens hate paying for and what I spend all my money on. Anyway, I think gas would be in the oligopoly category. There aren’t many companies in the gas industry. The entry into the market is not very east compared to other industries, so I believe gas stations would be in the oligopoly category. The next items I bought were (2) clothes. Unlike gas, clothes are in the monopolistic competition category. There are so many companies in the clothes industry because people like variety, and people have different styles. For example, I bought clothes at Gap (everything was ½ off on black Friday), H&M, Urban Outfitters, American Eagle, Abercrombie and Fitch, Hollister, and Express I didn’t even visit all the sores in the mall. Next, I bought (3) Uggs! I have wanted a new pair for a long time and even though they weren’t on sale (they never go on sale) I bought them. They’re so cute and I didn’t have any mini Uggs before this. Anyway, Uggs are in the monopolistic competition because there are tons of companies that sell boots. Just to name a few there’s Bear Paw, Old Friend, Emu, and a bunch of stores like Old Navy, Famous Footwear, and DSW sell the boots with a very similar design. However, Uggs many people are loyal to the Ugg brand because they have high quality and long-lasting shoes. Ugg almost has a monopoly on the classic short style of sheepskin fur boots. If one were to walk through the halls of my school you see Uggs everywhere you look, and hardly any of the other brands mentioned above. After the mall, my sister and I met my mom at a car dealership to buy a (4) new car for my dad for Christmas. Car dealers would be an example of an oligopoly. There are few dealerships and it is not easy to gain entry into the market, which is why they would be an oligopoly. Finally after a long day of shopping, we stopped at a drink cart and I bought a (5) Pepsi. Pepsi is a monopolistic competition because if I thought the price was too high, I could have easily purchased a Coke, Sprite, Gatorade, or any other drink. Entry into the drink market is pretty easy, the companies do a fair amount of advertising, and there are many companies in the business.

Intro

This one's for you Mr. Campbell. Haha, anyway my name is Tara and everything I would write in this intro is already in my "about me" on my blog.