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Industry Qualified in a Competitive Online Market

1. Is the online book retail (e.g. Amazon.com) industry qualified as a perfectly competitive market by the four market characteristics listed in the lecture note? If not, what characteristic(s) is (are) not met?

2. There are so many companies having websites to sell their products. However, not every company is successful in online retail. In your opinion, what are the common characteristics of products which can be sold successfully in online retail? Please provide at least one example and explain your answer.

3. Microsoft has been a giant in the software industry. Can we define Microsoft as a monopoly? Please explain. In addition, whether the Learner Index works well to define the market power for Microsoft in the software industry? Explain your answer.

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Solution Preview

On Amazon's market characteristics as a perfectly competitive one, one characteristics that is not found is that identical products are not present in the online book retail business.

The four characteristics of a perfectly competitive market are:
a.) Large number of small firms - yes
Amazon, Barnes and Noble, Powell's Books, Books-a-Million, Alibris, Abebooks.com, Biblio.com. Tattered Cover Bookstore, Half.com, and ValoreBooks.
b.) Identical products sold by all firms - no
Though online bookstores have almost identical shipping prices but they do not have identical products.
c.) Freedom of entry into and exit of the industry - yes
There is free mobility in this type of business. Martin (2013) noted that online retail businesses are a popular option for entrepreneurs with minimal capital to invest up front.
An online e-commerce store needs only ...

Solution Summary

The solution identifies the market structure of the online book retail industry and Microsoft. It discusses also the characteristics of products that are marketable online.