Economis Monopolistic Competition
In a monopolistically competitive market, the products of different sellers are differentiated on the basis of brands. Product differentiation gives rise to an element of monopoly to the producer over the competing product. As such the producer of the competing brand can increase the price of his product knowing fully well that his brand-loyal customers are not going to leave him. This is possible only because the products have no perfect substitutes. Since however all the brands are of close substitutes to one another, the seller will lose some of his customers to his competitors. Thus the market is a mix of monopolistic competition.
There are three main features that distinguish between a perfect competition and monopoly market structure: the type of firm, the freedom of entry and the nature of the product (Sloman and Norris 1999, pg, 161). A table of these features is contained in Appendix A. These two market structures are on opposite ends of the scale and consequently, the features and benefits of each structure vary quite dramatically.
In a perfectly competitive market structure, there must be many firms in the market competing for business. In contrast to this, within a monopoly there is only one firm operating in the market. A firm that is operating within a perfect market is referred to as a price taker. Duffy (1993, pg. 107) explains that a condition of working within a perfectly competitive market is that “a price taker cannot control the price of the goods it sells; it simply takes the market price as given.”
In a monopoly, the firm does not have to take the given price. It is able to search the market for the best price to charge relative to the demand for the product, profitability and availability of the resources for manufacture. This is particularly relevant when there is a shortage of supply. As there is only one seller of the product, consumers are forced to purchase the goods at a higher price. The International Encyclopedia of
There are three main features that distinguish between a perfect competition and monopoly market structure: the type of firm, the freedom of entry and the nature of the product (Sloman and Norris 1999, pg, 161). A table of these features is contained in Appendix A. These two market structures are on opposite ends of the scale and consequently, the features and benefits of each structure vary quite dramatically.
In a perfectly competitive market structure, there must be many firms in the market competing for business. In contrast to this, within a monopoly there is only one firm operating in the market. A firm that is operating within a perfect market is referred to as a price taker. Duffy (1993, pg. 107) explains that a condition of working within a perfectly competitive market is that “a price taker cannot control the price of the goods it sells; it simply takes the market price as given.”
In a monopoly, the firm does not have to take the given price. It is able to search the market for the best price to charge relative to the demand for the product, profitability and availability of the resources for manufacture. This is particularly relevant when there is a shortage of supply. As there is only one seller of the product, consumers are forced to purchase the goods at a higher price. The International Encyclopedia of