Question

When the first Pizza Hut opened its doors back in 1958, it offered consumers one style of pizza: its Original Thin Crust Pizza. Since its modest beginnings, Pizza Hut has established itself as the leader of the $25 billion pizza industry. Today, Pizza Hut offers six styles of pizza, including Pan Pizza, Stuffed Crust Pizza, and its Hand-Tossed Style. Explain why Pizza Hut has expanded its offerings of pizza over the past five decades, and discuss the long-run profitability of such a strategy.

Short answer

The profitability of such a strategy is that the firm would continue to attract a large share of consumers and gain profits.

Step-by-step solution

Definition of Monopolistic Competitive Market:

A monopolistic competitive market signifies a market structure where firms compete against each other for differentiated products. Such markets have no barrier to new entrants.

Understanding the strategy:

The pizza market is monopolistically competitive and creates no barrier to the entry of new firms into the market.As a result, new entrants threaten this firm to capture its market share. Thus, to retain its customers, the pizza firm would offer differentiated products for the consumers to choose from.

Granting fewer choices to the consumers would signify a loss of business as the consumers would choose a new entrant serving better pizza varieties than this firm. Such would decrease the profit gained by the firm in the future.

Thus, it will try to provide more varieties of its products to prohibit its customers from shifting their demand to another firm. Moreover, retaining the customers would also induce the firm's profits.