Hi, BLD inc produces pure bottled water. The industry has experienced rapid growth. The growth has attracted many competitors to the industry. However, marketing campaigns, to differentiate their products have been successfull. The main cost to the producers is the filtering system and as a result of the growth has led to a reduction in the cost of the systems. My question is is this a price searcher or price taker? In the answer it’s a price taker however this is a example of monopolistic competition which, according to the note is a price searcher market. So can someone please explain why it is a price taker in this case?
Lots of growth, many competitors, small margins. You have to take the price that is the going rate when you get into that business. I think.
that’s perfect competition with a flat demand curve. However this is monopolistic with a downward sloping demand curve.
I think it is price searcher as well… hmm
Here’s the schweser answer: The pure bottled water market meets the four conditions (large number of competitors, similar product, no company has a dominant market share, no barriers to enter or exit) of the price taker model. Increased volume for filtering systems has reduced their cost. Since the industry cost curve is decreasing, the long run supply curve is downward-sloping. If the industry cost curve were increasing the long run supply curve would be upward-sloping.
The pure bottled water market meets the four conditions (large number of competitors, similar product, no company has a dominant market share, no barriers to enter or exit) of the price taker model… I think this is monopolistic competition
i’m trying to understand this one better the companies in the market are spending money on advertising. if this was a price taker market, wouldn’t some companies not advertise --> lower prices --> increase their market share? that would essentially drive the other firms out of business. i’m probably missing something here
That answer goes against the CFAi text (like a lot of schweser info, I’m finding). Only true price taker is the perfect competition model. Only true price seeker is the monopolist. All others are somewhere in between.
It does seem that there is a problem with the above question. It’s definitely monopolistc competetion because of the advertising comment. Here is another question straight from Schweser’s Qbank that refutes it: Which one of the following structures is characterized by free entry and exit, a differentiated product, and price searcher behavior? A) Oligopoly. B) Monopolistic competition. C) Pure competition. D) Pure monopoly. Correct Answer: B Monopolistic competition is another name for competitive price-searcher markets. There are a large number of independent sellers, each produces a differentiated product, each market has a low barrier to entry, and each producer faces a downward sloping demand curve.
price searcher, price taking is only when you have homogenous products i.e. – a purely competitive industry.
Has anyone taken the time to contact schweser on all of their errors and contradictions?