Friday, September 10, 2010

Palestine Brewery

In determining the type of market structure for firms, one must address two questions - what is the product or service market and what is the geographic market. As I tell my economics classes of my failure to realize this in one of my grad school classes, we go through the two questions when examining markets and they can give us some insight as to the degree of competitiveness or lack of competitiveness.

Here is an example of a product (beer) that is not a monopoly if we take a global perspective. But if we squeeze the geographic market to just the state of Palestine, then Taybez beer is a monopolist. Now are they likely to act like a monopolist - no there is plenty of potential competition for beer, but they are the only beer producer in Palestine, and in terms of the geographic market of Palestine, then they would be a monopolist.

Hopefully one sees that how one defines the geographic market has a big impact on the type of market and the economic behavior that would occur. Likewise, if one incorrectly defines the market, how that can lead to erroneous economic conclusions.

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