Monopolistic Competition Occurs in Marketplaces Where There

Monopolistic competition occurs in marketplaces where there is competition, but the competition is imperfect. Firms sell goods that are similar, but firms have differentiated them, either practically through product or service characteristics, or through advertising, so they are perceived as being different by the consumers (Gillespie, 2013). This creates the ability to act in a manner similar to a monopoly in the short-term (Gillespie, 2013). The concept may be examined in more detail by identifying several firms that are monopolistic competition, and how those firms may become more monopolistic and face less pure competition.

Three examples of monopolistic competition are McDonalds on the fast food industry, Disney Inc. In the entertainment industry and Apple in the IT industry. Each has a highly differentiated product that is similar to others on the market.

To become more monopolistic firms may undertake a range of strategies to limit the effectiveness of competition. To improve their monopolistic position, each firm could increase differentiation; the most effective form to increase their monopolistic position would be new innovations to gain first mover advantage. Other strategies can include increasing marketing to support the differentiation and for a more aggressive strategy, acquiring competing firms would reduce the competition.

Question 2

In a company such as Target there is likely to be the manifestation of the principle agent problem. The principle agent problem occurs where those who are running the organization may have a conflict of interests; they are employed by the Targets shareholders to run the firm in the shareholders interests, but they also have their own interests as they are employees (Eisenhardt, 1989). Solving the principle agent problem can be difficult; the usual approach is to align the interests of the management team with the interests of the shareholders.

Specific action that may be adopted to align interests so that the management interests are the same as the shareholders; they benefit directly from the firms performance.

1.

Implementation of a performance related bonus scheme, this may be related to overall performance of the firm, profit level, share price movements or increases.

2.

Turn management into shareholders by using share owner as an incentive. This may be though a share purchase scheme or the award of shares for specific performance pr stock options. Once shares are owned, the manager will be a shareholder, so has aligned interests.

3.

A requirement for senior managers to own shares. This is an unusual approach, but it has been adopted by Apple, where the executives are now required to own three times their salary in company stock, and have only five years to satisfy the requirement (Worstall,

2013).

4.

The use of torment, where there are rewards given based on relative performance, creating an incentive aligned with owners interest, so incentives will be earned if Target