Competition-MicroEconomics - Term Paper Example

A large number of firms, product differentiation and easy entry and exit are the main characteristics of monopolistic competition. Competition is one of the important market forces. There are mainly two types of competition exist: price competition and non-price competition. Price competition is mainly experienced in a highly competitive market where perfect competition takes place. On the other hand, non-price competition occurs mostly in monopolistic market situations in which competing firms offer different attractive offers and special discounts with an aim of attracting and retaining customers.

Competition provides an environment in which not only buyers benefit but also sellers enjoy normal profits. For the buyers, competition is a source to obtain reasonable but competitive prices for goods and services and they do not need pay additional charges for the goods and services. This mostly occurs in perfectly competitive market in which buyers have perfect information about the goods and services and homogenous products are sold. Monopoly is form of market structure in which there is only a single seller who controls the entire supply of goods or services.

Monopolistic competition is a combination of both perfect competition and monopoly. In which, there are certain characteristics of both monopoly and perfect competition remain functional. In the following parts of the paper, first definition of competition has been provided and it is followed by types of competition. After defining each type of competition, a conclusion part has been included to sum up the paper. Firms observe two types of competition: price competition and non-price competition.

The firms compete with each other to attract and retain customers. For this purpose, they adopt different competition strategies to entertain their business objectives. Diminishing the price of their product below the price of competitors is one way to increase