Monopolistic competition

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Meaning and Characteristics Of Monopolistic Competition : 

Meaning and Characteristics Of Monopolistic Competition Presentation by: Maheshwar Giri Nikita Shakya Nikita Sharma Niroj Maharjan Niti Shrestha Date: 3rd May 2010

Meaning of Monopolistic Competition : 

Meaning of Monopolistic Competition Monopolistic competition is that market structure in which there is keen competition, but neither perfect nor pure, among a large number of producers or suppliers. They have some degree of monopoly because of their differential products. Thus monopolistic competition is a mixture of perfect competition and a certain degree of monopoly power.

Slide 3: 

Thus, Monopolistic Competition can also be described as: A market with a blending of monopoly and competition is described as monopolistic competition.

Major Sectors : 

Major Sectors Monopolistic competition is commonly found in many field in retail, service and manufacturing industries. Examples of retail:- clothe stores, chemists, electrical appliances, grocery, etc. Service Industry:- restaurants, beauty saloons, health clubs, etc. Manufacturing:- shoes, garments, cosmetics, furniture manufacturing , etc. 26-4

Characteristics of Monopolistic Competition : 

Characteristics of Monopolistic Competition Large number of sellers No product homogeneity Product differentiation: It is the distinguishing feature of monopolistic competition, that product of each seller is branded and identified A firm has a limited degree of control over the market as a relatively small percentage of total market is shared by individual firms. 26-5

Characteristics (Cont’d) : 

Characteristics (Cont’d) 5. Large number of buyers: Unlike perfect competition, here buying is by choice and not by chance 6. There is free entry of firms. 7. Two-dimensional competition:- Price competition, where firms compete with each other on the price issue and Non-price competition, where competition is based on product variation and selling costs.

Characteristics (Cont’d) : 

Characteristics (Cont’d) 8. Selling costs:- this too is an unique feature. Since products are differentiated, advertising and sales promotion becomes an integral part of goods marketing. Outlays incurred on this account are termed as selling cost. This distinguishes, where there is no need to advertise products, because goods are homogeneous.

Characteristics (Cont’d) : 

Characteristics (Cont’d) 9. The group:- since there is no homogeneity of product we can’t think of industry. Here the concept of group was introduced, which is a cluster of firms, producing very related but differentiated goods. 10. Negative sloping demand curve: Firms demand curve (or AR curve) slopes downward to the right. 26-8

Slide 9: 

11. The goal of firm is profit maximizing , both in the short run and in long run. 12. There is market imperfection, i.e. imperfect knowledge about market. 13. The prices of factors and technology are given. 26-9

Overall summary : 

Overall summary Key characteristics of a monopolistically competitive industry Large number of small firms Differentiated products Easy entry and exit Non-pricing competition and selling cost Negative sloping demand curve Objective- Profit Maximization Market Imperfection

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Thank you!

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