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When
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According to the article, "Get white" messages are inescapable in this part of
the world nowadays. Most of the Chinese
consumers obsessed with the white skin product. This trend is good for the
cosmetics companies, such as L'Oreal.
Euro
monitor International, another independent strategy research company, says
China's market for whitening products is expected to grow. In its report
released this year, L'Oreal was the clear leader in skin care in China in 2010,
accounting for 16% overall market share.
L’Oreal
has become an influence brand in the monopolistic competitive market structure.
The model of monopolistic competition describes a market structure occurs when
the firm have a lot of competitor, but each one produces a similar but
different product. L’Oreal has 13
skin-whitening products in the Chinese market, ranging from facial cleansers to
facial masks
compare to others competitor such as Estee Lauder or SK-2.
As a monopolistic competitive firm, L’Oreal
produces differentiated product in their market. They are successful in
produces a range of differentiated product by differences in functional features
or design
such as Age Prefect for
the older customer while Youth Code for the younger customer.
The
Age Prefect product of L'Oreal for older women.
The
Youth Code product of the L'Oreal for
young girls.
Besides, as a monopolistic competitive firms
have to engage in advertising. L’Oreal
advertises its brand about its unique features in their product ingredient to
let customer know what are the different and benefits of their product compare
to others competitor.
Furthermore, monopolistic competitive firms such as
L’Oreal produced a negatively slope but relatively elastic demand curve, because their product is similar to others competitor.
They can sell a wide range of
output at a narrow range of prices. L’Oreal as
a price maker, it has the ability to control price.
It offer
products priced from 100 yuan ($15.63) to 220 yuan to help them reach their
goals.
In order to satisfy customer
demand, Famous foreign companies, such as
L'Oreal, are still developing their male skin care business in China.
Bao Yanyue, general manager of
L'Oreal Paris in China, ensures the business of men's skin care products is
booming.This shows that there
is freedom to enter or leave the market, as there are no major barriers to entry or exit. Thus, the monopolistic
competition firms,such as L'Oreal only can make normal profits in the long-run.
Reference:
By
Chin Kar Man 0314683
According to what you said, L'Oreal is the clear leader in skin care market and also price maker.
ReplyDeleteBut why L'Oreal only can make normal profits in the long-run since it has the ability to control price?
This comment has been removed by the author.
ReplyDeleteIn the long run, firms in monopolistic competition will only make a normal profit (zero economic profit) because of the characteristic of easy entry and exit into and out of the industry.
ReplyDeleteIf a firm can differentiate itself from its competitors, it has some control over its prices, and therefore, at higher prices the quantity demanded decreases and at lower prices the quantity demanded increases. Because demand determines price, in order for a firm to sell more units it has to lower its price. Any price cut has to apply to all identical units at one point in time, therefore, MR is less than price for all units but the first.
So in the long run, more firms will enter the industry to partake in the profits and prices will decline, erasing the economic profits.
Can the firm earn supernormal profits in the long run? Would there be a possibility of oligopoly in the skincare market if firms collude with one another? Overall it is a great article.
DeleteTQ for the comment :)
ReplyDeletethe monopolistic competition firms may be able to make supernormal profits in short run. But in long run, supernormal profits attract in new firms. This will shirt the average revenue curve to the left. Firms continue until only normal profit is available.
In my opinion, i think cannot because each brands of skincare have its own ingredient so its hard to collude and become an oligopoly market.
loreal brand is best for use.Thanks for sharing this blog.
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