Monopolistic Competition, Brands and Economies of Scope

In Managerial Economics, one of the points that’s hard to get across is that most business are composed of multiple product lines, most of which are competitive and earn zero economic profits, mixed together with a handful that have some transitory monopoly power.

I’ve found that students are often unaware of consumer brand conglomerates. Here’s an image to help them see these connection.

Here’s the full size original. Via I Love Charts.

Technorati Tags: brand,conglomerate,monopolistic,competition

Comments

[Kit Lloyd]

Cool chart. It's interesting to look at some conglomerates, especially Proctor and Gamble, that have directly competing product lines and brands under the same umbrella. I'd be interested to know upper management's strategic thinking when they pit their own subsidiaries "against" each other (not saything that it can't be effective).

[Kit Lloyd]

*saying

[Dave Tufte]

Oh ... I think that's an easy one.

Suppose your firm creates a new product that is differentiable, and you get positive economic profits when you're the only producer. But competition will drive economic profits to zero with say 6 competitors. Well, there's no reason the original firm can't be one or more of those. If you don't (re)enter that market someone else will. And just because they end up making zero economic profits doesn't make them useless, or mean that they won't earn positive accounting profits.