It’s pretty clear why somebody would want to go from pure to monopolistic competition. You stop being a price taker and become a price setters. They would be able to produce at the price and amount where marginal cost equals marginal revenue, instead of where marginal cost meets demand. They can change more than they would at the fair market price, so they make more money. For the producer, this seems like a great idea. The problem is, how do they get there?
As we learned in class, what distinguishes monopolistic from pure competition is that the products are differentiated, instead of standardized. The question is, how is that happening in the apple industry? Some kinds of apples, like red delicious, granny smith, and pippin have existed for centuries, but, in the past few decades, there has been a rise of so-called designer apples. The most notable of these would probably be the honeycrisp. It was first cultivated in the 60’s in Minnesota and, today, can cost as much as 4 times as much as the red delicious.
We learned in class that, for monopolistic competition, marketing is crucial. The honeycrisp apple claimed to be everything the red delicious was not: crunchy, sweet, and with a thin skin, and the public loved it.
otable newer apples include the pink lady, from the 1970’s. What’s special about the Pink Lady is that the Pink Lady isn’t even a kind of apple. What we call Pink Lady are actually a sort called Cripps Pink, but the trademarked, recognizable name convinces consumers that they are buying a better quality apple, allowing them to charge more for it. This means that orchards selling the brand name become price setters, like producers in monopolistic competition.
Many seek to mirror the honeycrisp’s success. Going into the grocery store, you’re sure to see apples like the Kanzi, Sweet Tango, Jazz, Lady Alice, and Kiku. These are so called “Club Apples”. Similar to the Pink Lady, farmers have to pay a royalty to the developer of the apple for each tree they plant. This is usually around a dollar.
These apples are produced at a certain quantity, which is determined by the point where marginal cost and revenue meet, and sold at the price the consumer is willing to pay for that quantity. The consumer differentiates these apples from other kinds and, therefore, is willing to pay more. As advertising has created a following for some new types of apples, producers now operate under monopolistic competition instead of pure.
https://www.npr.org/sections/thesalt/2014/11/10/358530280/want-to-grow-these-apples-youll-have-to-join-the-club
This is a great example because it uses a simple market we can all understand with and easily explains the difference between pure and monopolistic competition. You make an important distinction between meeting demand vs marginal revenue which is a key part of understanding competition and how being a monopoly gives you the power to decide your price instead of following the market price that is essentially decided by consumers.
ReplyDeleteGreat post! I think that this example can be extended to other crops, especially nowadays. As it becomes more popular to eat organic, non-GMO, pesticide-free, or other varieties of a given crop, even fruits and vegetables that don't come in the wide range of flavors like apples are morphing into monopolistic competition.
ReplyDeleteI really enjoyed your post and the background on given apples. I liked the way that you talked about the differences between pure and monopolistic competitions, I think it was very clear and helpful. I think that the Honey crisp and Red Delicious example mirrored the supply curve of monopolistic competition and the prices very well.
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ReplyDeleteI think this is a really good way to think about pure vs. monopolistic competition. I like how you described the process of the apple industry becoming a monopoly, and the specific apple types you mentioned. Also, I like the way you brought up the question of how do industries transition from pure competition to being a monopoly. I hadn't thought about that before.
It was interesting to learn about an industry that has shifted from pure competition to monopolistic competition as it is something we haven't really gone over in class. You gave clear examples of how this can happen as a product shifts from becoming standardized to being differentiated. It would be interesting to learn about different markets that have followed this same trend.
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