Question

The Case: The hairdressing industry in Pakistan is flourishing day by day. There are certainly lots of hairdressers and each of the hairdressers has a slightly different type of skill. Some salons only cut, some only provide color services, some only do natural hair, some do all types, etc. Also, they have different premises situated in a different location where they provide the services. The prices offered by the hairdresser depend on the services offered by them and its uniqueness. If the particular hairdresser is known for providing the best services in the particular market then he can increase the prices of his services as he knows that consumers can pay slightly more amount of money for his superior services. There is relatively a low barrier for entry and exit for setting up a new hairdresser shop. Requirement: Read the above scenario and explain in which market structure ‘the hairdressing industry’ falls and how?

Answer 1

The Hairdressing Industry in Pakistan

The market structure of "the hairdressing industry" falls under Monopolistic Competition. The features of this market structure include: many hairdresser shops, low barriers for entry and exit for setting up a new hairdresser shop, the hairdressing services are not perfect substitutes, and the pricing decisions of any one shop do not impact others.

Step-by-step explanation:

In a monopolistic competition, each firm is differentiated from others by distinct goods and services. This situation is enhanced in a services industry, where different skills are employed to further differentiate each firm's services from the others. While the products and services may look similar, one cannot actually substitute one for the other. Therefore, each firm can charge different prices for their distinct products and services without being influenced by the other firms, unless through a cartel arrangement.