After realizing that Auntie Alice wasn’t telling them the truth about her role in stealing Gloria’s sauce, Jay and Gloria head to Auntie Alice’s house to confront her about the situation. She initially tries to lie her way out of the situation, but eventually we learn that Auntie Alice is a cunning businesswoman who swooped in and patented Gloria’s sauce because she already knew that Gloria didn’t have a patent. Patents are intended to reward individuals and businesses who invest resources in developing new products, and they can serve as significant barriers to entry for competition. Owning a patent can create a temporary monopoly on a product, which in turn can generate lots of profits.
Luckily, Phil recognizes a lot of city codes that Auntie Alice is violating and threatens to alert the city if she doesn’t pull the patent for Gloria’s sauce.
See more: barriers to entry, imperfect competition, market power, monopolistic competition, patents, profit
Gloria realizes that a new hot sauce by Auntie Alice tastes very similar to hers, so Jay and Gloria go to the supermarket to confront the grandmother. While there, Phil tries to play tough and accidentally eats some of her volcano sauce, which is a bit too much for Phil. Hot sauces are a great example for product differentiation! They are all substitutable and differentiated by heat level, but also by different ingredients. The market for salsa is probably monopolistically competitive since price is an important factor.
A second concept covered in this clip is the role of advertising. According to Auntie Alice, she’s only the spokesperson for a larger corporation who uses her likeness as a branding strategy. The role of branding is part of why monopolistically competitive firms don’t produce at minimum average cost. The use of brands could be to signal some kind of information, but it’s not clear what signal a sweet old lady has with hot sauce. Alice hints that the company has lots of lawyers who will squash any one who challenges them, implying that the company uses this tactic to create barriers to entry. Later in the episode, we learn Auntie Alice may not be telling the whole truth!
See more: advertising, barriers to entry, brand names, branding, efficiency, imperfect competition, marketing, market power, monopolistic competition, patents, preferences, product differentiation, profit
Cam is trying to eat a bit healthier and concocts a soy-based bacon alternative called facon. Phil and Claire have to deal with an emergency, so Cam is in charge of breakfast. He insists that it his facon is indistinguishable from real bacon, but Mitch and Alex are able to tell a difference. Only in competitive markets do substitutes need to be indistinguishable from each other. If companies are operating in imperfect markets, firms can differentiate their product and still be considered a substitute.
Unfortunately for Luke, he’s allergic to soy.
See more: entrepreneurism, imperfect competition, markets, product differentiation, substitutes, tastes and preferences
As part of his new job as partner in his own real estate firm, Phil has decided to put on a seminar for new homebuyers. As he’s telling the camera crew what he will be covering during the seminar, he realizes people in the audience could just write down all of his suggestions and then they wouldn’t need his firm anymore. He obviously had not thought this all the way through before setting up the seminar. Unlike physical property, ideas and processes explained in public are often available for anyone to use. Without property rights, Phil’s knowledge has essentially entered the public domain. Companies use intellectual property to maintain market power and extract economic rent from consumers. This market power comes in the form of a barrier to entry.
See more: barriers to entry, industrial organization, intellectual property, market power, patents, property rights
When adopting Lilly, Mitchell only gave her his own last name and not both his and Cameron’s because he was scared Cameron would leave. As an apology he writes a story about two monkeys adopting a panda. He and Cameron think they have found a niche market with stories for gay parents, but they realize the market is already pretty saturated after a trip to the bookstore.
See more: advertising, demand, entrepreneurism, market power, monopolistic competition, product differentiation, tastes and preferences
Mitch is on vacation with the family and stops by the tackle shop to see an old friend. The owner of the local bait shop tells him the worms he sells are twice the price by the lake as they are in town. People who are already at the lake probably aren’t willing to drive back to town to save a few cents, so the bait shop can markup the price and exploit this arbitrage opportunity. From an elasticity standpoint, this implies that people fishing at the lake are insensitive to the price of worms, or we would say their demand for worms is inelastic.
See more: arbitrage, elasticity, inelastic, markup price, price discrimination
Haley works for a lifestyle company with a history of selling dodgy products. The latest one is stickers that improve people’s moods. Haley’s boss wants them tested, but can’t use animals so she uses the next best thing – her assistants.
This clip demonstrates the importance of labor law and regulations. Without enforceable regulations, some employers might require workers to complete dangerous tasks. Even with regulations, this still happens. Haley’s boss may know about the danger of the product and the importance of regulation, but perhaps doesn’t care?
See more: entrepreneurism, incentives, labor law, product differentiation, rationality, regulation, safety, testing
Gloria wants to sell her family’s sauce to a larger company. Jay and Gloria each use a different tactic to make the product more appealing, in essence trying to drive up the demand for the sauce. Unfortunately, they don’t coordinate their strategies in advance and Jay blows the deal.
It turns out there’s a lot of information that Gloria has hidden from Jay. She has long had a surplus of sauce that she has been keeping in storage lockers across town. Gloria has likely paid a lot of money for all of the storage. When firms normally have a surplus, it means that the price for the product is above the equilibrium price.
This scene is also a good example of adverse selection in exchange. Gloria knows that her product is no good, but they are trying to signal not only that it’s good, but also that it’s special, almost magical.
See more: adverse selection, advertising, asymmetric information, demand, double coincidence of wants, information economics, marketing, preferences, product differentiation, profit, rationality, sunk cost, supply, tastes and preferences
Jay has a great new invention that he believes will revolutionize the closet industry. He believes he’s created a sock dispenser that will rotate his socks so that he isn’t always wearing the same socks over and over. In competitive industries, product differentiation like this can lead to short term profits – especially for early adopters.
Unfortunately, Manny brings his friend over he recognizes the potential that this new sock dispenser could provide her uncle Earn, who is also in the closet industry. Earl is a major competitor (and former partner) of Jay and he now realizes that his proprietary idea may be stolen if he doesn’t act fast.
See more: competition, entrepreneurism, innovation, market power, monopolistic competition, patents, product differentiation, proprietary technological knowledge, trade names
Cam and Mitch are trying to get Lily into the best preschool they can, and preschool admissions are normally very competitive, but they think that being gay and having a minority child will give them a leg up in the admissions process. The market for daycare appears to be a monopolistically competitive environment in which firms differentiate their offerings to appeal to different parents.
See more: allocation, competition, demand, inefficiency, monopolistic competition, prices, product differentiation, rationing, signaling
Manny lost Luke in a “sketchy” neighborhood. He and Phil enlist Gloria’s help to track him down. When they arrive in the neighborhood, they find that it has changed quite a bit since Gloria lived there. When searching for a girl, they have the option of visiting one of the four area cupcake stores, each specializing in a different area.
See more: gentrification, growth, imperfect competition, incentives, income inequality, market structures, monopolistic competition, preferences, product differentiation
Luke discovers that used women’s shoes command a higher price when he sells to people with very specific tastes. He and Alex join forces to supply goods to this niche market. By differentiating their product from just reselling shoes, the two can earn big profits.
See more: demand, monopolistic competition, outputs, product differentiation, profit, revenue, subjective value, supply, tastes and preferences