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Micro Economics




                    Notes            gained it respect and attention. Little Hearts was so different, it gave Britannia distinction.
                                     And then, the company launched Tiger, a glucose biscuit. Tiger is now a very large brand
                                     in the glucose segment.
                                     You’ve got to have something that’s very specially your own. Otherwise, the consumer
                                     won’t pay you much attention and the trade won’t want to stock your products – why
                                     should it? The retailer looks Cadbury Schweppes’ way because of Crush and Canada Dry.
                                     Our largest volumes come from Sport Cola. The brand sells much more than Crush.
                                     Proves my point, doesn’t it?
                                     I say again: you can’t  fight the dominant guy in the dominant segment. Get into his

                                     segment’s volumes indirectly, instead.”

                                   12.2 Short Run and Long Run Equilibrium of a Firm



                                   When  firms are competing only through price changes, there are three cases of long run
                                   equilibrium of a typical firm under monopolistic competition.

                                   Case 1:  When competition takes place only through the entry of new fi rms.
                                   Case 2:  When competition takes place only through price variation (price-cutting).
                                   Case 3:  When competition arises through price variation and new entry.

                                   12.2.1 Equilibrium through New Entry Competition


                                   Under monopolistic competition, the number of independent  firms selling differentiated
                                   products or brands of a given commodity is large and the relative market share of every fi rm
                                   is insignifi cant. Therefore, the entry of a new fi rm into the market will not have any noticeable
                                   adverse effect on the sales (or demand) of any of the established fi rms. Established fi rms will
                                   have no reason to react to new entry by adopting practices to discourage this. Moreover, there
                                   are no legal or non-legal (economic) barriers against new entry. Hence, when high profi ts of the
                                   existing firms attract new entry, new firms will in fact enter the market.



                                   The process by which competition from the entry of new firms leads an individual fi rm’s long
                                   run equilibrium is explained with the aid of Figure 12.1.
                                                                     Figure 12.1





























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