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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

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Effects of Entry on Industry and FirmP

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Market deman

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Initial market supply

Effect of entry on the industry

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Effect of entry on themonopolistically competitive firm

New entry

Later market supply

Reduced market share

Later demand facing filmMR

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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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