Determine the market structure for which firm exists in and explain convincingly why your team believes so.
Dell market structure is monopolistic competition. Why?
This is because Dell has many competitors such as Toshiba, Acer, Sony, Lenovo, Asus, Hp, Apple, and Sharp .The existence of these firms makes Dell not the only single computers firm in the market. This have let Dell met the conditions which is many sellers in monopolistic competition. Thus, Dell pricing decisions will not affect the market outcome.
Even though there are many firms selling computer products, but, each of them sell differentiate products. For example, there are differences between Dell’s laptops and Acer’s laptop in the feature, style and functions. Besides, Dell competes with other firms through advertising their products rather than cutting their prices. Through advertisement, Dell’s products will be differentiated with other firms. Another way by differentiating their products is by research and development (R & D), through introducing new and improved products, consumers will decide to purchase from them. Hence, it is not necessary for Dell lower it prices to increase the demand and profit. This is because they are selling differentiated products.
Next, to start up an electronic firm does not require a huge capital requirement. For example, someone who wants to start up electronics business can get a loan and set up their business without too much trouble. Moreover, it does not require natural resources too. Besides, it is easily to exit the market. Therefore, Dell confronts low barriers to enter the market.
Dell, as a monopolistic competitor, can be a price maker. This is because that its product is differentiated. On the other hand, due to the existence of close substitute’s products, the demand curve that Dell met is elastic downward slopping demand curve.[pic]
From the demand curve above, if Dell lowers its price from P to P1, this will be result in an increase of sales/demand from Q to Q1. However, if Dell raises its price, for a monopolistic competitive firm, there will still be some of its loyalty customers are willing to purchase their products and will not much affect its sales. Thus, due to Dell is a monopolistic competitor, the demand curve that Dell met is less elastic than for a perfectly competitive firm and more elastic than for a monopolist.