The Type of Competition
An Italian restaurant is likely to be in market which experiences monopolistic competition. Italian restaurants largely provide diverse quality meals and distinctive ambiances. In as much as the restaurant is classified in the hospitality industry, its services should not be not identical to others. Italian restaurants encounter a monopolistically competitive venture since they engage in product differentiation, have considerable market power, and can quickly enter and exit the market. Additional information is provided on the market power research paper sample. Further, their scale of economies influences price structures and production to high output levels (Parenti, Ushchev & Thisse, 2017). The restaurants compete for consumers in various dimensions, and they are unlikely to employ strategic competition.
Profit maintenance and increase require the integration of profit-maximizing behavior, which is the process where “a firm produces up to a point where the additional cost equals the additional revenue from a unit of output” (Parenti, Ushchev & Thisse, 2017). The survival of the eatery will require that it differentiates its supply decisions from those of the perfect competitor. The restaurant’s aim should be to become the sole supplier by achieving the market demands. For the maximization of profits, the restaurant should ensure that it minimizes its output inefficiency by maintaining highly competitive prices. The restaurant should also integrate price discrimination concept to ensure that it makes additional profits. For instance, it should propose that influential figures, including government officials and local celebrities, will be required to pay extra for a particular product or service. Since the restaurant is a monopoly, its profits are likely to be higher compared to those businesses that are oligopolistic. Hence, it should exploit this advantage and utilize its earnings to make further inventions. The invention of better services and products will ensure that the eatery is continually improving on its outcomes.
Parenti, M., Ushchev, P., & Thisse, J. F. (2017). Toward a theory of monopolistic competition. Journal of Economic Theory, 167, 86-115.