monopolistic competition (group 8)
TRANSCRIPT
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CHAPTER VIII
Monopolistic Competition 1
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Monopolistic Competition 2
The model of monopolistic competition describes a
common market structure in which firms have
many competitors, but each one sells a slightly
different product.
Monopolistic competition is a type of market
structure characterized by (1) small firms, (2)
differentiated products and (3) easy market entryand exit.
http://www.economicsonline.co.uk/Business_economics/Competition_and_market_structures.htmlhttp://www.economicsonline.co.uk/Business_economics/Competition_and_market_structures.html -
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Monopolistic Competition 3
Many small sellers- monopolistically
competitive market is comprised of a large
number of independently-acting firms andbuyers. Just like perfect competition, the
exact number of firms cannot be
determined.
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Monopolistic Competition 4
Differentiated product- product
differentiation is the process of creating real
or apparent differences between goods and
services sold in the market. A differentiatedproduct has close, but not perfect substitutes.
Product differentiation can be real or
imagined.
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We can therefore say that in a monopolistically
competitive market, the product of one firm
can be differentiated from that of another. An
efficient producer will use non-pricecompetitive methods to convince his or her
consumers to pay a higher price for his or her
product. The most common form of non-price
competition is advertising.
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There are four main types of differentiation:
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Physical product differentiation, where
firms use size, design, colour, shape,
performance, and features to make their
products different. For example, consumerelectronics can easily be physically
differentiated.
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Marketing differentiation, where firms try to
differentiate their product by distinctive
packaging and other promotional techniques.For example, breakfast cereals can easily be
differentiated through packaging.
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Human capital differentiation, where the
firm creates differences through the skill of
its employees, the level of training
received, distinctive uniforms, and so on.
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Differentiation through distribution,
including distribution via mail order or
through internet shopping, such as
Amazon.com, which differentiates itselffrom traditional bookstores by selling online.
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Easy entry and exit- in a monopolistically
competitive market there are no barriers to entrypreventing new firms entering the market or
obstacles in the way of existing firms leaving the
market. Entry into a monopolistically competitive
market is not quite as easy as entry into a perfectlycompetitive market.
The number of firms operating in such a market is
large; each firm has small market share and firms
have limited ability to influence prices.
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Market promotion- is one key to get sales back.
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Arguments for advertisements
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Some of the arguments in favor of advertising are thefollowing:
Advertising is informative;
Advertising increases sales and permitseconomies scale;
Advertising increases sales and contributes to
economic growth;
Advertising supports the media; and Advertising increases competition and lowers
prices
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Arguments against advertisements
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Some of the arguments against advertising are thefollowing:
Advertising is not informative but competitive;
The economies of scale are illusory; Advertising raises the cost curve;
Advertisers may use their influence to bias the
media;
Advertising is used as an entry barrier; and
Advertising is not a productive activity
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Product Differentiation and Demand Elasticity
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The demand curve of a firm in monopolisticcompetition market structure is downward sloping
because of the preference of customers for the
features of the differentiated product. This type of
curve is based on the notion that the firm can changeits price without losing all of its business because
buyers do not see any perfect substitute. Thus, the
fewer the substitutes, the less elastic the demand
curve will be.
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Examples of monopolistic competition
Examples of monopolistic competition can befound in every high street.
Monopolistically competitive firms are most
common in industries where differentiation is
possible, such as:
The restaurant business
Hotels and pubs General specialist retailing
Consumer services, such as hairdressing
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Prepared by:
John Nelson Reyes
Angelie Paras
Agosto Perlas
Grace Lemeric
Noby Grace Servita
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