i) Many sellers and buyers
There are many sellers and buyers for the cookies industry. Besides that, different sellers set different prices and there are different products with the same brand. Some sellers do not follow the average Oreo price. Other brand will not have this same product. Therefore they can set their own market price. One of the examples is Oreo can alter their prices according to both consumer demands and the prices set by their rivals. If their rivals set a higher price, the Kraft Company will need to set their prices lower than their rivals to attract more customers. Even though Oreo is under one of the monopolistic competition’s characteristic, price maker, but the price of this product would tend to be all around the same without a huge or an obvious difference.
ii) Easy market for entry and exit
Other than that, Oreo has faced many different competitors because monopolistic competition is an easy market for entry and exit. For example, Cream-O and Newman-O are also selling biscuits and these two companies are quite well-known in our nation. This is because there is a relative freedom of entry and exit into market, new firms will enter as they are encouraged by the existence of abnormal profits. New entrants will increase supply causing the price to fall. As price falls, the average revenue and marginal revenue curves shift inwards as revenue from each sale is now less.
Hence, Kraft Company has spent a lot of money on advertisements to convince consumers to buy their product and let them know about the benefits and the latest flavors or promotion of the product. For an example, Oreo promotes its own new flavor, Blueberry Ice Cream Flavoured Oreo that has a minty blueberry taste through advertising on magazines.
Courtney from Study Moose
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