Monopolistic competition is a market structure that exists somewhere between a perfectly competitive market and a monopolized market. In a perfectly competitive market, there are many firms that produce a homogeneous product, meaning that all the products are the same and there is no differentiation between them. In a monopolized market, there is only one firm that produces a product and there are no close substitutes for it. Monopolistic competition falls in between these two extremes because it involves many firms that produce differentiated products, meaning that there are small differences between the products of different firms.
One key characteristic of monopolistic competition is that firms have some degree of market power, meaning that they have the ability to influence the prices of their products. This is because there are barriers to entry in the market, meaning that it is difficult for new firms to enter and compete. These barriers can take the form of patents, brand loyalty, or economies of scale. For example, a firm that has a strong brand name or a patent on a unique product may have a competitive advantage over other firms in the market.
Another characteristic of monopolistic competition is that firms engage in non-price competition, meaning that they compete with each other through means other than price. This can include advertising, promotions, and other forms of marketing. Firms in monopolistic competition may also differentiate their products by offering unique features or higher quality.
There are several implications of monopolistic competition for consumers and firms. For consumers, the presence of non-price competition can lead to higher quality products and more choice in the market. However, the market power of firms may also lead to higher prices for consumers. For firms, the ability to differentiate their products can lead to increased profits, but there is also the risk of competition from other firms in the market.
Overall, monopolistic competition is a common market structure that is characterized by many firms producing differentiated products and engaging in non-price competition. It can have both positive and negative effects on consumers and firms, and it is an important concept in economics.
Monopolistic Competition Essay
Each firm is presumed to be able differentiate its product from that of its rivals. In this market example, firms start with an excess demand. However, comparable to monopoly, each firm has market control and faces a negatively-sloped demand curve. Thus when the firm is in long-run equilibrium, it underutilizes its optimum scale plant. In the figure, the firm is selling OQ output at OP price. Share this: Facebook Facebook logo Twitter Twitter logo Reddit Reddit logo LinkedIn LinkedIn logo WhatsApp WhatsApp logo The subject that I study is Microeconomics.
Monopolistic Competition: Settings At A Grocery/Supermarket Store Essay Example
The Average Selling Cost Curve: Do average selling costs rise or fall with output? Understanding these different type of market structures helps to better understand what type of market is currently occurring. He viewed the monopolistically competitive company as vigorously advertising, while that is a characteristic of big corporations in oligopolistic sectors where extreme advertising and promotional wars lead to devastating losses for firms and society. ADVERTISEMENTS: In this essay we will discuss about:- 1. Diminishing returns are explained by the greater difficulty in persuading the less accessible consumers to buy, after the more accessible consumers are influenced. Yes, the price is slightly expensive than others but it is guaranteed that the customers will be served with only the best ingredients, all for the satisfaction of their customers. For instance, the firms may provide students with an opportunity to subscribe for library services at a reduced price Sexton 2008.
Large number here implies that there are so many firms that the activities of one firm have no perceptible effect on the other firms in the industry. External costs can take the form of pollution by an industry caused by emission of toxic gases into the atmosphere. However, undeniably, several socially essential items also come from competitive industries. Principles of economics: Scarcity and social provisioning 2 nd ed. The rules governing the operation and the general business of the firms in a monopolistic competition are relatively few or none. Therefore, there is no need for advertising.
The decrease in accounting profits occurred because the market price declined as new firms entered and the markets supply increased. Such firms use more manpower, equipment and raw materials than is necessary. Some of the competitors include Vico, Ovaltine, Horlicks, Dutch Lady and Nutrilite. The surplus or excess capacity is never abandoned and the result is high prices and wastes. In the event that these programs yield quality innovations, the effects will be felt by the entire market should the researchers chose to make them public or decide to capitalize on them.
The demand curve is highly elastic although not "flat". Rather, L is to the right of the point of tangency A. Theory of Excess Capacity 5. Physical product differentiation, where firms use size, design, colour, shape, performance, and features to make their products different. It does not really invest in innovation and a huge chunk of the supernormal profits it earns is spent in pressuring the government to let it continue as a monopoly. In the long run, there can be no economic profit because there is free entry into the industry.
Monopolistic Competition Advantages And Disadvantages Essay
The Costa has the Costa Coffee Club cards. A complementary good, in contrast to a substitute good, is a good with a negative cross elasticity of demand. Large number of seller sell the similar product by using differentiating strategies, therefore no single firm can set the price of a product. The total costs of the firm now include production as well as selling costs. However, there are users who will prefer either fast, comfortable, four wheel drive, or even different colors for their cars. Necessities also have inelastic demand as they are crucial in life and consumers cannot do without them, changes in prices cannot deter their consumption.
Similar Products The firms in a monopolistically competitive market produce analogous products which are however not completely identical Colander, 2008. Companies can require to reach some minimum size before having the ability to incur sufficiently on marketing and promotional approaches to institute a recognizable brand. Product differentiation, which results in many products that are similar but not identical, also creates a distance between products. Thus, each firm will be earning only normal profits in the long-run, as shown in Figure 2. Therefore price elasticity of supply is elastic as the price changes lead to changes in output level. After this point, the average selling cost of ОС units is RC, the total cost of selling this quantity of the product being OCRT.
When oligopoly companies in a given market agree on the volumes of product to generate and the price to fix, they try to act in a monopoly-like market. Therefore, the Starbucks company use the marketing mix to ensure their firm are successfully promote the right products at the right prices and place to their customers. ADVERTISEMENTS: vi Selling Costs: Selling costs have an important place in this market. Price control is hard because the forces of demand and supply play a significant role in determining the prices. The nature of inefficiency can assume various types in competitive firms such as wastage of resources, rent-seeking undertakings, managerial slacks and practices, poor coordination and organization of production, and pitiable treatment of the workforce. The company should therefore continue operating in the monopoly as it will get supernormal profits. Monopolistic competition and optimum product selection.
The cost of entering and exit is very low. Therefore, monopolistic competition occurs between firms that produce substitute products. Price Determination of a Firm under Monopolistic Competition 3. Secondly, monopolistic rivalry offers product diversity as a key advantage Shambaugh et al. Monopolies date back to Standard Oil Co.
