Harry Potter and muggle economics

Picture this …

Harry Potter finds himself in the possession of a dimension traveller, with which Harry ends up visiting Diagon Alley in 4 different dimensions! While magic can transfigure and alter objects in numerous ways, there are natural laws and the economy of the magical world seems strikingly backwards. Surprisingly, the market structure is different each time. But we are sure he is confused about the different types of market structures, So allow me to elucidate. In no time you all will be fluent with muggle economics.

Before jumping into the various types of market structures, we must understand what a market is. A market is a setup where two or more parties engage in the exchange of goods, services and information. Ideally, it is a place where two or more parties are involved in buying and selling activities.

In the first dimension Harry was amazed to see thousands of shops selling butterbeer and nothing else! All shops had hundreds of customers and the prices across all shops were 2 galleons per drink! This is a classic example of perfect competition, characterised by a large number of buyers and sellers, a standardised product and no barriers to entry or exit. A key characteristic is that all the firms operating in these markets are price takers, they sell their product at the price set by the market. Imagine you are wanting a tall glass of butterbeer, one firm sells it for 3 galleons and another for 2. What would you do? Obviously buy from the firm selling it at 2 galleons as the products are perfect substitutes for each other.

In the second dimension everything seemed to be normal except for the strange fact that Voldemort seemed to be the owner of a haute couture label called ‘Death Eater’! The shop seemed to be extremely popular amongst all wizards and witches as the robes were one of a kind ! Not only so, Voldemort had also acquired a patent to ensure no one else could intrude on his vast empire! A classic monopoly. A monopoly is a market situation where there is a single seller, and his/her product has no close substitutes. Lord Voldemort is a price maker, having complete control of the price he wants to sell his robes at. A monopoly exists because Lord Voldemort has patented his product. Other reasons why a monopoly can emerge are government licensing, cartels, and control on raw materials.

In the third dimension, things get very interesting, there seems to be huge Animosity between Zonko’s joke shop and Weaslys’ Wizard Wheezes. Both shops seemed to sell extremely similar products . Due to the complexity of the charms on their products there were no others like them. The two seemed to be competing on the basis of customer service rather than price. This market situation is Oligopoly. An oligopoly is recognized by 10 or less firms who focus on advertising and mutual interdependence. In an oligopoly the products can be differentiated or pretty much identical. If identical, the firms compete with each other on the basis of advertising and better customer service to compete with one another.

In the fourth market structure, there seemed to be a hundred shops, all with a different brand name, selling a different kind of chocolate frog. If you swallow them whole, do they hop around in your stomach? It's enough to make one wary of purchasing too many, though some come with awesome collectible cards, others come in different flavours, coupons for Bertie Bott's Every Flavor Beans. Most students seem to enjoy these treats. This is a classic example of monopolistic competition. This, as we can see. has similar but differentiated products. Under monopolistic competition, products are differentiated and these differences are made known to the buyers through selling costs.

The wizarding world is in dire need of education about market structures and needs to bring its economy from the 17th century into the 21st. After this lesson, I am positive you and Harry can rehabilitate this. Despite the magic, basic market economics apparently still applies in the wizarding world.