This paper explores distinctive characteristics of the monopolistic competition, its advantages and disadvantages, as compared with other types of market. Monopolistic competition is a market with several firms producing the same commodity or service but having no exact substitute of their produce…
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These factors could be the brand name, brand personality, quality etc. Examples of firms competing in the monopolistic market are clothing brands, restaurants, and other service industries. This kind of competition is termed as monopolistic because each firm has its unique position in the market despite the presence of several other competitors. They usually have a loyal customer base that comprises of people who are not frequent switchers. Switching is generallyassociated with some sort of dissonance occurring in the whole buying experience and customers are generally indifferent to small price fluctuations. As far as the market is concerned, it has certain key characteristics including: presence of many firms selling the same commodity with a slightvariance also known as a Unique Selling Proposition (USP) that makes them stand out amongst the market clutter. Product may have substitutes but the exact identical cannot be present due to its unique differentiating factors that are not based on prices. Customers have lesser control over prices as compared to the producers. Prices are also unlikely to be influenced by the competition. Market leadership can be attained but by a small margin and on the basis of captured market share. There are no serious barriers to entry as compared to other market competition types. Production is usually lesser than the capacity and is based on carefully calculated demand. There are several problems associated with monopolistic competition that have been identified by several economists. Firstly, this form of competition will lead to no economic profits in the long run. This is because here are likely to be more market runners after some years and they will offer better incentives or differentiating factors if the current...
This paper offers a comprehensive theoretic analysis of the monopolistic competition, as a type of economic market. The limitations of that type of market, as well as its advantages and disadvantages to producers, customers and the economy as a whole are considered. Monopolistic competition refers to several different market players with unique differentiating factors
The firms operating in monopolistic competition are also inefficient as they do not produce at the optimum level. Inefficiency, in economic terms, means that the available resources are not use at the optimal bringing down the chances of incurring lower cost with every marginal product.
This form of competition will lead to no economic profits in the long run. This is because here are likely to be more market runners after some years and they will offer better incentives or differentiating factors if the current firms do not invest heavily in product research and revamping. This, too, will be an addition to the costs and in the long run, the convenient and inevitable influx of new competition will result in minimal or no economic profits. In order to minimize future losses and build customer loyalty , focus should be on the quality management and customer service as advertising and marketing campaigns, packaging and ambiance stay for some time until a prospective market leader enters the picture and replicates it.
Negative aspect of monopolistic competition is that firms engage in misleading advertising and focus less on quality control after sometime.
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“Monopolistic Competition. Concept, Advantages and Limitations Essay”, n.d. https://studentshare.org/macro-microeconomics/1497189-monopolistic-competition-concept-advantages-and-limitations.
Taylor (2007, p. 285) specified that monopolistic competition “occurs in an industry with many firms in free entry; where the product of each firm is slightly differentiated from the product of the other firms.” In the Mankiw (2007, p. 341) perspective, market structure can be classified based on whether one, few, or many firms are in the market; if the market has many firms, market structure can be further identified based on whether differentiated or identical products are sold in the market.
Rival firms in an oligopoly match each other’s price cuts but do not match each other’s price increases. Competition in an oligopoly primarily takes the form of advertising and product differentiation. There are a lot of barriers to entry in an oligopoly like economies of scale, product differentiation and brand loyalty, mergers and takeovers etc (Slomon 174).
The group of companies prior to the merger was individual competitors in a market dealing with the same products. However, after being bought by two lawyers, the environment is bound to change as the competitive market changes in structure. The preceding scenario is an example of an imperfect competitive market referred to as monopolistic competition.
Name Professor Subject Date Competition Competition is important for productive efficiency, it is very well in practice, but it is not so clear how it works in theory. The most important view regarding competition is that competitive pressure makes organization internally more efficient by sharpening incentives to avoid sloth and slack.
SWOT analysis is a tactical planning method used to evaluate the strength, weakness, opportunity and threats of a project or business. A SWOT analysis acts as a guide for one to know and identify the positive and negative of one's organization that is the strength and weakness as well as the external environment that is the opportunity and threats.
As the companies provide almost identical products, competition in the industry centers not only on the price of the products but on other factors as well. Such factors as quality of the products, their promotion and advertising as well as other elements that are not directly related to the price play important part in the industry with monopolistic competition.
Firstly, a perfect competition situation comprises of a large number of small firms that compete with each other and produce at minimal costs for every unit. Secondly, a monopoly does not have rivals in the industry. It minimizes output to
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