MONOPOLISTIC Date: 12-05-2025
COMPETITION: A
MANAGERIAL ECONOMICS Course:
Managerial
PERSPECTIVE Economics
Name: Aymaan
BACKGROUND OF THE
CASE STUDY
The fashion retail industry is an ideal example of monopolistic
competition, where many firms operate but offer slightly
differentiated products.
Brands like Zara, H&M, and Uniqlo compete by creating unique
styles, brand experiences, and pricing models — even though
their core offerings (clothing) are similar.
The case allows us to observe how businesses create niche
value, price their goods, and respond to market changes.
This makes it a relevant and practical example for applying
economic theories to real-world business strategy
IMPORTANCE IN
MANAGERIAL
ECONOMICS
Managerial economics involves using economic concepts to make
business decisions. Monopolistic competition helps managers
understand:
How much pricing power they have over products due to branding.
The elasticity of demand — understanding how consumers respond to
price changes depending on brand loyalty.
How market entry/exit by competitors can affect profitability in the
short and long run.
Learning from such industries helps firms design better marketing,
pricing, and product strategies.
RELEVANT
MICROECONOMIC
CONCEPTS
Demand and Elasticity: Firms must understand whether their customers
are sensitive to price changes.
Product Differentiation: Each company tries to stand out by offering
something unique – be it in quality, style, or brand identity.
Market Structure: This is a classic case of monopolistic competition,
with many sellers and differentiated products.
Profit Analysis:
In the short run, firms may earn supernormal profits. In the long run, new
firms enter and drive profits down.
Advertising & Non-price competition are key to maintaining
market share.
CASE OVERVIEW –
FASHION RETAIL
INDUSTRY
The fashion retail industry is dominated by global brands like
Zara, H&M, and Uniqlo, each offering clothing but targeting
slightly different market segments.
Zara: Fast fashion, trend responsiveness, premium
pricing.
H&M: Affordable fashion, broad range.
Uniqlo: Quality basics, tech fabrics, minimal design.
All three operate in similar markets but attract different
customer bases by differentiating themselves.
This market structure allows them to maintain some control
MARKET STRUCTURE IN
ACTION
- Characteristics of monopolistic competition in this
industry:
Many firms compete for the same customer base.
Low entry barriers: New brands can enter with online
stores or niche offerings.
Firms rely heavily on non-price competition: design,
quality, customer service.
Brand loyalty creates price flexibility.
DEMAND AND
ELASTICITY
In the short run, brands like Zara enjoy customer loyalty,
allowing them to increase prices without losing many
customers.
This makes demand more inelastic.
In the long run, as more similar options appear, customers
become more price-sensitive.
Demand becomes more elastic due to increased substitutes.
Example: Zara may charge $30 for a shirt, while Shein offers
similar styles at $12. Yet many still buy Zara due to brand
value — until cheaper brands gain popularity.
ENTRY, EXIT &
PROFITABILITY
Short Run:
Brands can earn supernormal profits due to limited
competition or strong branding.
Long Run:
New firms enter seeing profits, increasing competition.
Firms now only earn normal profits, as prices are driven down
and customers spread out.
Market reaches long-run equilibrium, where ATC = Price and
there's no incentive for entry or exit.
USE OF DATA
Market Share (2024): Zara 15%, H&M 12%, Uniqlo 10%
- Price Comparison: Zara avg €45, H&M avg €35
- Store count: Zara (2,000+), H&M (3,000+), Uniqlo
(2,200+)
Data shows real implications of
market differentiation
ECONOMIC
IMPLICATIONS
- Consumers:
Benefit from product variety, innovation, and style choices.
Can find a product tailored to their preferences and budget.
Firms:
Need to constantly innovate to stay competitive.
Engage in marketing battles rather than price wars.
Long-Run Inefficiency:
Firms operate with excess capacity (not at minimum ATC), which is
inefficient.
But this tradeoff provides greater product diversity, which can be
valuable to consumers.
KEY TAKEAWAYS
- Monopolistic competition =
balance of competition and
control
- Success hinges on
differentiation and customer
value perception
- Price flexibility comes with
cost control challenges
SUMMARY OF FINDINGS
- Real-world firms show short-
term profits and long-term
equilibrium
- Differentiation sustains
demand; competition limits
excess gains
- Case reveals dynamic interplay
between firm strategy and
market forces
MANAGERIAL
IMPLICATIONS
- Differentiate offerings to
maintain loyal consumer
base
- Adapt fast: monitor trends,
innovate quickly
- Invest in branding,
customer experience, tech-
enabled logistics
REFERENCES &
QUESTIONS
- Kotler, P., & Keller, K. (2016).
*Marketing Management*.
- Statista. (2024). Fashion market share
Europe.
- Company websites (Zara, H&M,
Uniqlo, Shein)
THANK YOU
