Monopolistic Competition Homework Help, Assignment Help, Online Tutor, Tutoring

Submit Assignment

* *

Payment Online Assignment Help

Business Economics Homework

Homework Help

sfsf

Monopolistic Competition

The perfect competition and monopoly models have provide useful for predicting behavior in market in which there are very large numbers of suppliers or one supplier respectively. Many markets today, however, do not accord with either of these extremes. Perfect competition assumers homogeneous products, but even where there are large number of suppliers to a market there is often some ‘brand loyalty’ so that suppliers to a market there is often some ‘brand loyalty’ so that suppliers are not complete price-takers, e.g., in the retail sector or personal service such as hair dressing.

Monopolistic competition refers to markets in which there are a large number of firm competing, supplying products which consumers believe are close but not complete substitutes. Therefore, it is a market in which firm compete thought slight product differentiation and management has discretion in pricing, trading off price against quantity sold.

Monopolistic competition (the large group case) is analogous to perfect completion except for the element of ‘product differentiation’. It is this feature which induces the firm to spend on selling costs like and expenditure to promote the sale of its feature which induces sale of its product characterized by ‘distinctiveness’. It is the feature which enables the firm to price is product differently for different market segments. It is this feature which makes the demand for its product relatively price-elastic, elasticity being in the range of greater than unity but less than infinity.

For example, take the short run profit case. This profit can be expected to attract new suppliers into the market. The effect of this is to reduce the demand for the output of the exiting firm in the industry and to increase the price sensitivity of their products. The market demand is shared out amongst a large number of suppliers competitive keenly on price. Assuming no impediments to the competitive process, new entry will continue until all of the pure profit is competed away.