Monopolistic Competition

Monopolistic competition is characterized by the presence of relatively large number of sellers selling. Differentiated products promoted by heavy advertising and easy entry and exit from industry. The first and third characteristic provides the competitor aspect while the second characteristic provides the monopolistic aspect that why called monopolistic competition.

Large Number Sellers

In monopolistic competition there is large number of sellers for example 20, 25, 60 but not 1000 as in perfect competition. As a result monopolistic competition includes;

  • Every firm has a small market share so every firm has limited control over market price.
  • As the number of firm is quite large so collusion is not possible so the firm cannot restrict output and affect prices.
  • In this industry every firm can have its own pricing policy without considering the action of revivals so every firm has independent action.

Differentiate Products

In contrast to perfect competition in which there is standardize product, monopolistic competition has product differentiation. Different aspects of product differentiation are;

1. Physical Attributes

Just like mobile can different physical attributes.

2. Service

Like in automobiles some have their service workshops available in different areas. Which makes it easy for customer to get there automobiles fix. Similarly some glossary store may employees who are very courteous.

3. Location

Some products can be differentiated through the location and accessibility of the location and accessibility of the store that sell them that’s why small shops can compete with large super market even though they may have limited range of products. These shops mainly compete on the basis of location.

4. Brand Name and Packaging

Product differentiation can also be created through the use of brand names. Simple jeans might cost less by the jeans by Calvin Klein. But customers still buy by brand name.

5. Some Control Over Price

Because of the product differentiation monopolistic competitor can have some control over the price.

business economics

March 29, 2019