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Monopolistic Competitive Markets - Term Paper Example

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In this essay, the author takes a deeper look at the monopolistic competition, a form of imperfect competition that involves many competing retailers that have been differentiated from one another, its features and how it impacts the industry as a whole …
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Monopolistic Competitive Markets
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Download file to see previous pages The buyers are many and none of them has any control over the market. The third assumption is that the entry and exit to and from the industry are feasible and no sunk costs are incurred by firms in doing this, thus going by this assumption there is the assurance that all firms will be profitable in the long run. The fourth assumption is that consumers are fully informed about the prices and products that the completion has and can easily gain access to this information. The final assumption regards to external players entering the market and it assumes that there is no entry of new players in the existing market. These assumptions are clearly not applicable to any real-world situation and it is from this reason that many real-world markets are categorized under imperfect competition which is a type of competition existing in a market which does not fulfill the requirements necessary for a perfect competition. There are several types of imperfect competition namely: monopolistic competition, monopoly, oligopoly, monopsony, oligopsony and finally information asymmetry. 
Monopolistic competition is a form of imperfect competition that involves many competing retailers, producers or suppliers selling products that have been differentiated from one another (William 2011). The products are actually substituted products but because of the differentiation activities that they have undergone such as different branding, they are not exactly the same. Firms in a monopolistic competition can have characteristics of a monopoly in the short run e.g. exploiting their market dominance to obtain abnormal profits but in the long run, other firms enter the market thus increasing the market’s competition.   ...Download file to see next pagesRead More
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