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|Section 1: Characteristics of a Monopolistically Competitive Industry|
|Microeconomics - Unit 8|
Monopolistic Competition and Oligopoly
So far, we have discussed two market structures, pure competition and monopoly. These are the two extremes. Pure competition is the most competitive, and monopoly the least competitive. The two market structures in between these two extremes are monopolistic competition and oligopoly. In this unit, we will first discuss monopolistic competition. Then we will discuss oligopoly.
Characteristics of Monopolistic Competition
Four characteristics of a monopolistically competitive industry are
Characteristics 1 and 2 are the same as in perfect competition. Characteristic 3 means that firms in this industry sell products that are similar but slightly different. The difference may be in the packaging of the product, the ingredients, the service associated with the product, the name of the product, etc. It is also possible that there may not be real differences, but only perceived differences by consumers.
Advertising (characteristic 4) helps to emphasize these differences to consumers.
Characteristics 3 and 4 usually result in competitors charging slightly different prices for their products. Competitor A may charge $3, while competitor B charges $2.85. Firms have some control over the price, and the demand curve is, therefore, downward sloping for each firm.
Examples of Monopolistically Competitive Industries
|Last Updated on Monday, 31 December 2012 08:08|