Question

Since products sold in Etsy are all "hand-made", thus unique, how does this characteristic affect:

a. each seller's ability to price discriminate; and

b. Etsy's ability to sustain and maximize profit in the long run?

Explain please.

Answer 1

Answer - Since as per the given statement , the products are unique in nature , hence the seller will have the ability to practise the price discrimination at a greater level because the products are unique for each seller. In the short run , Etsy will be able to earn the positive economic profits.

But , in the case of long run , when the other sellers will see these positive profits, they will try to enter the market and hence in the long run , the positive profits will not sustain and the normal profits will be earned in long run.

Since product differentiation is present , this market is the form of monopolistic competition.