Suggested flow:

1. Homogeneous products

2. Perfect Competition → No Profit for Firms

3. Hotelling's Model of Competition, Bertrand Paradox & Differentiation

4. Pricing power

Detailed guideline

E-commerce & Omnichannel retail

A. PRODUCT DIFFERENTIATION & PRICING STRATEGY ANALYSIS

1. In e-commerce & Omnichannel retail, they usually use: HOMOGENEOUS PRODUCTS

Homogeneous products in economics are defined as goods or services that are identical in quality and characteristics regardless of their producer. Lv Bing (2010) explains that in a balanced economic system, homogeneous refers to enterprises or products being the same, with no significant differences from the perspective of consumers or the market. This definition highlights that in markets with homogeneous products, differentiation in terms of quality or features is minimal or non-existent, leading to competition primarily based on price (Bing, L., 2010)

In other contexts, it is evident that the rise of e-commerce has significantly influenced both consumer behavior and market dynamics. According to Villa and Monzón (2021), the expansion of e-commerce, propelled by changing consumer preferences and the "Amazon effect", has not only increased accessibility to a variety of products but also made them more affordable. This phenomenon is characterized by a growing online population adapting their purchasing habits, leading to a surge in the use of light goods vehicles for delivery and a consequential shift in urban logistics systems. The study emphasizes how e-commerce evolution, driven by a mixed economic model, affects consumer choices, contributing to a more competitive market landscape for homogeneous products.                 

2. Perfect Competition → No Profit for Firms

An important economic principle is that under perfect competition, the marginal cost (MC) is equal to the marginal revenue (MR), which is also equal to the price. This principle was explored by Kolmar (2017), who analyzed firm behavior under perfect competition. The study asserts that in a perfectly competitive market, a profit-maximizing firm will operate where the price equals the marginal costs if the resulting revenues at least cover the average variable costs. This situation ensures that the firm will never make losses in its optimum since it can avoid these by leaving the market. In the long-run market equilibrium with free market entry and exit, a firm’s producer surplus is always equal to zero, which implies that firms do not make a profit in the long run.

Panel (b) demonstrates that initially, at price P1, firms can't cover average total costs, leading some to exit the industry. This shifts the supply curve in Panel (a) to S2, decreases industry output to Q2, and increases the price to P2. Here, firms break even with zero economic profit, halting further exits. As a result, individual firm output increases from q1 to q2, but total market output drops due to fewer firms. Panel (a) uses uppercase Q for total market quantity, while lowercase q in Panel (b) represents quantity by an individual firm.