Monopolistic Competition Essay

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Table of contents Introduction 3 Determination of the market structure for Oriflame Cosmetics S.A. 4 Short-run equilibrium 6 Effects of entry and exit 7 Long-run equilibrium 8 Non-price competition 8 The public interest – Comparison to perfect competition 9 Conclusion 11 References 12 Introduction This assignment is about the determination of the market structure under which the company Oriflame Cosmetics S.A. operates. It consists of detailed justifications which explain the determination of this market structure. Above that, the short and long run equilibrium for that kind of market structure are described and graphically illustrated. Finally, advantages and disadvantages of the determined market structure in comparison to the perfectly competitive market are pointed out when considering the public interest. Determination of the market structure for Oriflame Cosmetics S.A. Oriflame Cosmetics S.A. is a global cosmetic and personal care company as already explained in the first assignment (9 January 2014). The company operates as a direct selling company since its customers have the opportunity to order directly products online or through catalogues. Based on the market structure criteria of the monopolistic competition market (Number of firms: many/several; Freedom of entry: Unrestricted; Nature of product: Differentiated; Demand curve: Downward sloping-relatively elastic) given in the textbook “Essentials of Economics” (ch.5, p. 117), we classify Oriflame Cosmetics S.A. to the Monopolistic competition market structure. The reason for this determination is initially when taking in consideration the number of firms operating in that industry, there are many other direct selling companies with whom Oriflame Cosmetics S.A. is in competition. Rivals such as the companies Avon, Amway, Mary Kay, Yves Rocher, L&R, etc. offer

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