Post on 23-Nov-2014
transcript
MONOPOLISTIC COMPETITION 1
PRESENTED BY:ABHISHEK CHAKRABORTYARIJIT TALUKDER ANUPAM MUKHOPADHYAYANKUSH DAWNPROJJOL KUMAR DAS
Monopolistic
Competition
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Monopolistic Competition
The competition of Monopolistic Competition has been introduced in the
literature by: Prof.Chamberlin in his book “The theory of Monopolistic
Competition”
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Introduction
Monopolistic competition is a market structure in which there are many firms selling differentiated products.
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The further right on the scale, the greater the degree of monopoly power exercised by the firm.
Monopolistic Competition Oligopoly Duopoly Monopoly
Perfect Competition
Pure Monopoly
Market Structure
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Characteristics of Monopolistic Competition
Power to set prices somewhat like a monopoly Face competition like perfect competition********************************************* Large number of firms
-- Each firm has relatively small market share-- Each firm must be sensitive to average market price of its product-- Collusion is not possible due to the number of firms
No barriers to entry or exit
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Product Differentiation – Each firm makes a product that is slightly different from the products of competing firms.-- Close substitutes but no perfect substitutes-- An attempt to increase price will normally results in a lower volume sold
Competition on Quality, Price, Marketing-- Quality is design, reliability, service provided to buyer and ease of access to product-- Price – downward sloping demand curve-- Marketing – firm must market = promotion, distribution, packaging
Characteristics of Monopolistic Competition
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Basis for Product Differentiation
Physical differences Convenience Ambience Reputations Appeals to vanity Unconscious fears and desires Snob appeal Customized products
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Product Differentiation
Product differentiation implies that the products are different enough that the producing firms exercise a “mini-monopoly” over their product.
The firms compete more on product differentiation than on price.
Entering firms produce close substitutes, not an identical or standardized product.
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A Monopolistically Competitive Firm’s Demand Curve
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THREE TYPE OF FIRMS IN MONOPOLISTIC COMPETITION
Above Normal
Profit Normal Profit Economic Loss
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A Monopolistically Competitive Firm: Above Normal Profit
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A Monopolistically Competitive Firm: Normal Profit
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A Monopolistically Competitive Firm: Economic Loss
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Long-Run Equilibrium: A Monopolistically Competitive Firm
P=LAC
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Effects of Entry on Industry and FirmP
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Quantity (units per time period)
Market deman
d
Initial market supply
Effect of entry on the industry
Pri
ce (
per
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Quantity (units per time period)
Initial demand facing firm
Effect of entry on themonopolistically competitive firm
New entry
Later market supply
Reduced market share
Later demand facing filmMR
p1
p2
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Advertising and Branding
What’s to be gained by pouring money into advertising? It works!-- Continuous signals regarding product differentiation-- coca-cola vs pepsi
Brand has tremendous value-- e.g. Budweiser-- Brands tend to capture in a single name all the
values a firm wants to impress upon the buyer
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Advertising, Prices, and Profits
Product differentiation reduces the price elasticity of demand, which appears as a steeper demand curve. Successful product differentiation enables the firm to charge a higher price.
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Examples of Monopolistic Competition
Banks Sporting GoodsRadio Stations Fish and SeafoodClothing JewelryComputers Health SpasFrozen Foods Apparel StoresCanned Goods Convenience Stores
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Price Discrimination
Price discrimination – selling the same good or service at a number of different prices.
Answer – Price discrimination is a marketing means to increase economic profit
Methods of price discrimination-- Discriminate among groups of buyers
works when different buying groups are willingto pay different prices (on the average) for the
same good or serviceExample: Airline travel – prices target business travelers vs leisure time travelers -- discriminator is advance notice, shorter the
notice, the higher the price
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Monopolistic Product: Colgate Toothpaste
As we know the main features of monopolistic competition are product differentiation, homogenous product(not identical), we can say that Colgate has a same type of competition with CLOSE UP, PEPSODANT.
Homogeneous Product
ProductDifferentiation
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