What is Monopolistic Competition?Monopolistic competition is a market structure where companies offer the same type of product or services. In a monopolistic market, there is a combination of a competitive market and elements of monopoly. We can, therefore, say that it is the mid between the competitive and monopoly elements. There is freedom of entry and exit in a monopolistic competitive market, and one firms decision does not affect that of its competitors. Show
Back To: BUSINESS LAW How does Monopolistic Competition Work?Most firms in a monopolistic market are similar but with a relatively low degree market power. It means that all of them are price makers, which makes the demand to be highly elastic, hence leading to high sensitive price changes. In monopolistic competition, there are positive economic profits, but in the short run. However, in the long run, it usually comes to zero. So, because of stiff competition, most firms engage in an intensive advertisement, so that they can be able to thrive in the market. Examples of Monopolistic CompetitionGenerally, the monopolistic competition involves competition with a number of industries that consumers familiarize with every day. You can find this in real-world markets. Good examples of such include the following:
Basically, differentiation of products is key when it comes to business. So, most restaurants competition always ranges from the quality of food, price as well as services. Also, there is free entry to this kind of business, meaning that there are low barriers when it comes to setting up a restaurant.
Hairdressing is also a good example of monopolistic competition. Salon and barbershop owners acquire a reputation based on the services they offer. Those with exceptional services usually build a good reputation, which attracts customers to their shops. Anyone is free to set up a hairdressing business because the business has low entry barriers.
Clothing is also another thing that people familiarize with during their day-to-day life. Product differentiation is also what makes this type of business to thrive in the clothing industry. For instance, designer label clothes thrive in the market because of the brand quality that makes it stand out from the rest.
Today we have many television programs ranging from local channels to international ones. People across the world are free to choose the programs they want to watch. For instance, Netflix provides consumers with a wide range of television programs from which they can choose from. Remember that content quality is what makes consumers prefer a certain channel over others. Characteristics of a Monopolistic CompetitionThere are four features of monopolistic competition. They include the following:
Monopolistic Competition AssumptionsThere are various assumptions when it comes to monopolistic competition. They include the following:
Limitation of monopolistic Competition
Back to: Business Transactions How are monopolistically competitive firms similar to monopolies?The monopolistically competitive firm decides on its profit-maximizing quantity and price similar to the way that a monopolist does. Since they face a downward sloping demand curve, the same considerations about how elasticity affects revenue are relevant, and the firm will maximize profits where MR = MC when P > MR.
What is common between monopolistic competitive market and monopoly market?(1) Both in monopoly and monopolistic competition, the point of equilibrium is at the equality of MC and MR and the MC curve cuts the MR curve from below. ADVERTISEMENTS: (2) In both, the demand curve (AR) slopes downward to the right and the corresponding marginal revenue (MR) curve is below it.
What are the similarity and differences between monopolies and monopolistic competition?The monopoly and monopolistic competition are different as the basic difference is the number of players in the markets. A single seller creates a monopoly competition. At the same time, monopolistic competition requires at least two but not many sellers.
How is a monopolistically competitive firm similar to a monopoly firm in the short run?Short-run equilibrium for a monopolistically competitive firm is identical to that of a monopoly firm. The firm produces an output at which marginal revenue equals marginal cost and sets its price according to its demand curve.
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