Firms like Papa John\'s , Domino\'s, and Pizza Hut sell pizza and other products
ID: 1230177 • Letter: F
Question
Firms like Papa John's , Domino's, and Pizza Hut sell pizza and other products that are differentiated in nature. While numerous pizza chains exist in most locations, the differentiated nature of these firms' products permits them to charge prices above marginal cost. Given these observations, is the pizza industyr most likey a monopoly, perfectly competitive, monopolistically competitive, or an oligopoly industry? Use the causal view of structure, conduct, and performance to explain the role of differentiation in the market for pizza. Then apply the feedback critique to the role of differentiation in the industry.Explanation / Answer
Monopolistically competitive. In a monopolistically competitive market, there are many firms, but each firm produces a differentiated product. According to the causal view, the structure of differentiated products causes firms to capitalize on the absence of close substitutes by charging higher prices and earning higher profit. Thus, structure causes conduct resulting in performance. According to the feedback critique, the conduct of firms may determine the market structure. Firms’ products may be differentiated because of firms’ conduct in the industry. Examples of such conduct include advertising and other behavioral tactics that feedback into demand, causing consumers to view products as differentiated. Thus, it is not at all clear that differentiated products are a structural variable. The willingness of consumers to pay for product variety gives firms an incentive to offer different products (thin-and-crispy pizza, pan pizza, pizza delivery, etc.).
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