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Monopolistic Competition and Price Taker Demand - Case Study Example

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The paper "Monopolistic Competition and Price Taker Demand" discusses that the state may fix a maximum price for the product of the monopolist or may undertake to supply the commodity itself. The fear of the state intervention forces the monopolist not to charge a very high price for the product…
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Monopolistic Competition and Price Taker Demand
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Download file to see previous pages The third market model called monopolistic competition or imperfect competition contains larger elements “of a competitive model and fewer elements of monopoly model. It is thus a hybrid of monopoly and competition.
Monopolistic competition as the name signifies is a blend of monopoly and competition. It is the systematic and realistic theory of price analysis in this imperfectly competitive world (Begg). Monopolistic competition is a market situation in which there are relatively large numbers of small firms which produce or sell similar but not identical commodities to the customers. For example, a firm supplies branded good ‘Lux Soap’ in the market. There are many other firms in the market which sell similar soaps (not identical) with different brand names like Rexona, Palm Rose, etc. the firm supplying ‘Lux Soap’ enjoys a monopoly position over the sales of its own product. It also faces competition from the firms selling similar products. Same is the case with many other firms in the market like plywood manufacturing, Jewellery making, wood furniture. Book stores, departmental stores, repair services of all kinds, professional services of doctors, technologies, etc. these firms and others which have an element of monopoly power and also face competition over the sale of product or service in the market and called monopolistically competitive firms.
According to Leftwich, “Monopolistic competition is a market situation in which there are many sellers of a particular product, but the product of each seller is in some way differentiated in the minds of consumers from the product of every other seller”. In the words of J.S. Bain, “Monopolistic competition is found in the industry where there is a large number of small sellers selling differentiated but close substitute products.” (Begg) In case the number of firms is small and the action taken by one firm is followed by rival firms in the market, it is then to be studied within a separate framework of monopolistic competition called Oligopoly. ...Download file to see next pagesRead More
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