Explain the likely market structure that hair salons in Singapore operate in. [10m]
Intro
Industries differ in the degree of competition, based on the degree of control the firms have over
price, the freedom with which firms can enter the industry and the nature of products produced.
Hair salons are likely to operate in monopolistically competitive market structure for the following
reasons
1: Barriers to entry
● Services provided by hair salons are only slightly differentiated
● Start up capital costs (eg: small shop space required, minimal capital equipment such as
hair dryers, washers, hair treatment appliances and solutions are low)
● Skills of hair stylists are mainly semi-skilled and do not command high wages
● Any creation of new hair design/cuts/treatment can be easily copied and duplicated by
rival hair salons
● Results in low BTE
2: number and size of firms
● Low BTE results in ease of entry of new firms → proliferation of many small firms in the
hair salon industry, with small market share
● Each hair salon operator has a small customer base -- probably only residents in the
neighbourhood
● In each HDB town/neighbourhood, it is evident that there would be 4-5 hair salons
sometimes just within the same block of public housing
3: nature of products and shape of demand curve (pricing and non-pricing behaviours)
● Offering similar haircuts, hairstyling and treatment services w slight differentiation in
terms of hair treatment product used or in terms of customer service -- many substitutes
available
● Each hair salon experiences high PED (gentle, downward sloping demand curve) →
tend to undertake price competitions/discounts to increase TR
● Non price competition in the form of low cost advertising such as distribution of flyers
around the vicinity to promote ​eg: certain new hair treatment packages, weak attempts at
bundling haircut services with free gifts, haircuts within 10 minutes
4: LR normal profits earned
● Existence of low BTE → entry of new firms erode supernormal profits made by existing
firms in the SR
● Normal profits made in the LR
Conclusion
● The features and competition behaviour of hair salons → monopolistic competition
★ One paragraph per characteristic