Analysis of the company’s Competitive Environment

Hardware and Lumber has been operating in a very competitive market over the years. The type

of market structure that is associated with this company is Monopolistic Competition. This

market structure is made up of many competitors however each competitor sells a slightly

different product. In the market, Hardware & Lumber has many competitors with their main one

in wholesale business being ARC Mainland International and in its Agriculture division

competes with its main competitors, Hi-Pro Farm Store and Jamaica Live Stock Association

(JLA). Two of Hardware & Lumber new competitors include Lee Watson Company Limited

and Melloy Distributors Limited.

Four characteristics of the Monopolistic Competition market are:

i. Types of Products - Product Differentiation

ii. Number of Firms in the Market

iii. Demand Curve

iv. Access to the Market - Freedom of Entry and Exit of Firms

i. Types of Products -Product Differentiation

The main feature of the monopolistic competition market is the product differentiation. This

means that products are made different by the brands, quality, shape, colour or even

performance. This occurs when a buyer of a product can easily distinguish between two products

that are referred to as close substitute of each other.

 ii. Number of Firms in the Market - Non Price Competition

The Monopolistic Market Structure has many small firms that make up the market. Each firm

advertises their products through different mediums such as the newspaper, radio, T.V or on the

internet; this is how the firms keep their consumers informed with information on their products.

With numerous firms in the market, the competition is extremely high hence, firms needs to

advertise their products in order to receive immediate positive reaction from its customers which

will help to increase sales. Most brands builds its company’s reputation based on advertisements

done in the past and keeping up with the quality of products that are being produced. The main

purpose of this is to earn supernormal profit from what is produced for the buyers in the market.

iii. Demand Curve

In the Monopolistic Competitive Market structure, firms are price takers hence, the reason of

having a downward sloping demand curve and is said to be elastic. Firms have market power and

can either charge a higher or lower price for its good than its competitors. If a firm in the

industry increases their price, they wouldn’t lose all their customers, these firms are price setter.

iv. Access to the Market - Freedom of Entry and Exit of Firms

New entrants can enter freely in the market and existing firms can exit the market freely. For

new entrants, they only enter into a competitive market when they realize that the existing firms

are making a lot of profit from their products. Supplies normally increase whenever a new firm

enters the market which would lead to a reduction in the price of the goods. This would result in

the existing firms to make normal profits. If some of the existing firms are making losses in the
market then some of the firms will exit the market, this will reduce the supply of products and an

increase in price.
Graph showing the comparison between the Profit Maximizing Output, Price and Profit with that

of a perfectly competitive market.

Barriers to Entry in a Monopolistic Competition Market

In the Monopolistic Competition market, the barriers to entry are extremely low; hence, it’s easy

for competition to take place. For Hardware & Lumber, this organization will always have

competition since nothing is preventing new entrants from entering the market.
Equilibrium Price and Quantity in a Competitive Market

The vertical axis represents the price axis and the horizontal axis represents the quantity axis.

The upward sloping supply curve is labelled (S1) and the downward sloping demand curve is

(D1) and where they intersect it’s called Equilibrium Price which is labelled (P1) and

Equilibrium Quantity.

Competition may arise in the industry so supply will rise and at any given price people are

willing to supply more quantity, so the supply curve would shift to the right which is labelled

(S2). The equilibrium price is lower and the equilibrium quantity is higher.

450

400
S1
350 S2
P1
P2 D1
Price
250

200

150

100
5 10 15 20 25
Q1 Q2

Quantit
y
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