There is an assumption among the consumers that there is a non-price difference amongst the competitor's products. There are very few if any barriers to entry and exit and finally the producers control the price up to a specified degree. It's essential to note that in the long run, monopolistic competitive market characteristics are almost the same as of those of the perfectly competitive markets. Their two main differences include production of heterogeneous products by the monopolistic competition and the involving a lot of non-price competition based on the product differentiation. In the short run firms that make profit will break even in the long term because of demand increases and the average total cost increases.
Monopoly refers to a single seller providing no competition which allows the supplier has a strong say in pricing power. Monopoly also where a single group or organization owns most or all the market for a particular service or product. There are four main types of competition in free market which are perfect competition, oligopoly competition, monopolistic and monopoly. A monopoly is where there is one seller that takes control over the supply ad price of a service or product with many buyers. This allows the seller to control the price to whatever they desire to match or compete with other sellers.
In monopolistic competition, the industry consists of many firms competing each other, and each firm practices product differentiation with a product that is slightly different from the products of competing firms. Firms are free to enter and exit the industry. The product differentiation enables firms to compete on product quality, price and marketing. To stay in the industry for a considerable period, the firm must maximize its profit. Because of product differentiation, a firm in monopolistic competition faces a downward-sloping demand curve.
Restriction or barriers are lesser than monopolistic market. c. Identical or differential products – In this type of market the production is either identical differentiated. d. Government intervention – In oligopolistic market scenario, government plays a big role to ensure businessmen are not allowed to follow illegal ways of influencing rates and
This position allows the firm to obtain abnormal profit in the long run when it operates at the profit maximising point, where marginal cost equals marginal revenue. The products in the industry are non-homogeneous and hence, they do not have close substitutes. A monopoly is characterised by asymmetric information. Consumers, who buy the product, do not have the same information as the supplier and
According to Nellis & Parker (2006), monopolistic competitive markets exist where there are many organisations selling products or services that are comparable, but have slight degrees of differentiation from each other. Nellis et al, further elaborate on the pricing discretion, stating that it is limited and consumers within this market can switch to alternative suppliers according to their needs and desires. (Nellis & Parker. 2006) Nellis & Parker (2006) described the conditions and circumstances that lead to a monopolistic competitive market, these include: 1. A large number of organisations competing: AIC competes against a collective of 93 licensed insurance companies trading.
Monopolistic: Monopolistic competition is a market structure in which a large number of sellers sale close substitution products. In this type of market, the goods produced and sold different, but they are close substitution of each other. Monopolistic competition is a combination of perfect competition and monopoly. There are various examples of this type of market and some of these are the market of goods such as shoes, books, watches, toothpaste,
Individual firms have no control over prices when other firms sell identical or nearly identical products. All firms in a perfectly competitive market are “price takers”. Individual firms simply take the price determined by the market and produce the quantity of output, also determined by the market, which maximizes the firm’s profits. If a perfectly competitive firm attempted to
The reason for this is that there are other determinants that effect competition other than pricing. These determinants include transport and search costs as well as product differentiation. (Allian, 2012) Bertrand did not take into account that many firms offer various incentives to the consumers for purchasing their product, over that of their competitors, in an attempt to decrease their price elasticity of demand. If firms are able to decrease their price elasticity of demand then the competitive price will not be equal to the marginal cost and thus Nash equilibrium cannot occur. This therefore renders Bertrand’s duopoly model improbable at