October 31, 2010
In explaining the model for the prices of beer. Looking at the value of a good went down, due to poor weather. The poor weather decreased the supply of beer and increased the price of beer. We are focused on the weather change shifting the supply curve to the left due to the higher prices of beer. You would expect for the cooperation the produce the beer to make a higher profit but this is not the case profit dropped. This has also affected the supply of the goods that are needed to produce beer. The weather affected the cost of the goods it takes to produce the beer so this also drove up the price of beer, in this case one would expect that higher prices would lead to higher profits but the reports show in the last quarter profits grew at a slower rate and fell by ten percent. The article identifies two effects that lead to this effect besides bad weather; low consumer confidence lead to a substitution drop in supply due to the bad weather had a sign cant effect on profit that the demand for this Heineken beer must have been very elastic in respect to prices. There is a market for beer resulting monopolistic completion.( The higher amount of substitutes.) Dropping in profit is a frequent symptom of monopolistic completion. Since Heineken competes in Monopolistic Competition. In a perfectly competitive market, there are many buyers and sellers, buyers and sellers are price takers, there are no barriers to entry, free entry and exit, and the product being traded is homogenous across the market. Monopolistic Competition only differs from perfect competition in a few regards. Not like perfect competition, Monopolistic firms are price searchers to a degree. Because of brand loyalty, producers have a certain extent of control over the price they charge. Also, since the product being traded in Monopolistic Markets is nearly homogenous, but differentiated in terms of advertising, brand loyalty is then what allows firms to have some control over the price they charge. Despite these two differences from Perfect Competition, Monopolistic Competition very closely resembles Perfect Competition.