Main features (characteristics)
Large number of sellers each controlling a small share of the market.
There is product differentiation based on labeling, trademarks, branding, advertising etc.
Freedom of entry and exit of firms because of the nature of firms i.e. small scale and producing close substitutes they can either enter or leave the industry in the longrun.
High level of advertisement and propaganda aimed at creating psychological superiority and difference of one product over another.
The demand curve for a firm under monopolistic competition is downward sloping, from left to right and is more elastic than that of a monopoly firm.
There is free mobility of factors of production in monopolistic competition.
Firms produce at excess capacity in the longrun. They earn normal profits in the long run and abnormal profits in the short run.
Because of differentiated products, each firm has a monopoly power over its own product and can influence the price hence a price marker not a price taker as in perfect competition.
There is brand loyalty among the customers. Some customers are made to believe that certain brands are more superior than others e.g Colgate toothpaste as opposed to close-up tooth paste, Nile beer etc
Although each firm has a monopoly over its own product, no firm has full control over its price because the products are close substitutes not naturally different
The goal of the firm is profit maximization both in the shortrun and longrun.
Examples of monopolistic competition in Uganda include food restaurants, tooth paste manufacturers lager beer breweries, bathing soap (Lux, imperial, lifebuoy, Giv, hair saloons etc.
Note : Consider the similarities and differences between monopolistic competition and perfect competition. Also consider the similarities and differences between monopolistic competition and monopoly.
This should be based on the characteristics or features of these market structures, and their pricing output decisions.
There are many producers and many consumers in a given market.
Consumers have clearly defined preferences and sellers attempt to differentiate their products from those of their competitors; the goods and services are heterogeneous, usually (though not always) intrinsically so.
There are few barriers to entry and exit
Producers have a degree of control over price.
The characteristics of a monopolistically competitive market are almost the same as in perfect competition, with the exception of heterogeneous products, and that monopolistic competition involves a great deal of non-price competition (based on subtle product differentiation). A firm making profits in the short run will break even in the long run because demand will decrease, average total cost will increase. This means in the long run, a monopolistically competitive firm will make zero economic profit. This gives the company a certain amount of influence over the market; it can raise its prices without losing all the customers, owing to brand loyalty. This means that an individual firm's demand curve is downward sloping, in contrast to perfect competition, which has a perfectly elastic demand schedule.
There is product differentiation based on labeling, trademarks, branding, advertising etc.
Freedom of entry and exit of firms because of the nature of firms i.e. small scale and producing close substitutes they can either enter or leave the industry in the longrun.
High level of advertisement and propaganda aimed at creating psychological superiority and difference of one product over another.
The demand curve for a firm under monopolistic competition is downward sloping, from left to right and is more elastic than that of a monopoly firm.
There is free mobility of factors of production in monopolistic competition.
Firms produce at excess capacity in the longrun. They earn normal profits in the long run and abnormal profits in the short run.
Because of differentiated products, each firm has a monopoly power over its own product and can influence the price hence a price marker not a price taker as in perfect competition.
There is brand loyalty among the customers. Some customers are made to believe that certain brands are more superior than others e.g Colgate toothpaste as opposed to close-up tooth paste, Nile beer etc
Although each firm has a monopoly over its own product, no firm has full control over its price because the products are close substitutes not naturally different
The goal of the firm is profit maximization both in the shortrun and longrun.
Examples of monopolistic competition in Uganda include food restaurants, tooth paste manufacturers lager beer breweries, bathing soap (Lux, imperial, lifebuoy, Giv, hair saloons etc.
Note : Consider the similarities and differences between monopolistic competition and perfect competition. Also consider the similarities and differences between monopolistic competition and monopoly.
This should be based on the characteristics or features of these market structures, and their pricing output decisions.
There are many producers and many consumers in a given market.
Consumers have clearly defined preferences and sellers attempt to differentiate their products from those of their competitors; the goods and services are heterogeneous, usually (though not always) intrinsically so.
There are few barriers to entry and exit
Producers have a degree of control over price.
The characteristics of a monopolistically competitive market are almost the same as in perfect competition, with the exception of heterogeneous products, and that monopolistic competition involves a great deal of non-price competition (based on subtle product differentiation). A firm making profits in the short run will break even in the long run because demand will decrease, average total cost will increase. This means in the long run, a monopolistically competitive firm will make zero economic profit. This gives the company a certain amount of influence over the market; it can raise its prices without losing all the customers, owing to brand loyalty. This means that an individual firm's demand curve is downward sloping, in contrast to perfect competition, which has a perfectly elastic demand schedule.