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.
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!
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.
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.