Monopolistic

Welcome to monopolistic competition

Monopolistic competition is a form of imperfect competition where many competing producers sell products that are differentiated from one another (that is, the products are substitutes, but, with differences such as branding, are not exactly alike). In monopolistic competition firms can behave like monopolies in the short-run, including using market power to generate profit. In the long-run, other firms enter the market and the benefits of differentiation decrease with competition; the market becomes more like perfect competition where firms cannot gain economic profit. Unlike perfect competition, the firm maintains spare capacity. Models of monopolistic competition are often used to model industries. Textbook examples of industries with market structures similar to monopolistic competition include restaurants, cereal, clothing, shoes, and service industries in large cities.

monopolistic cartoon

factors of monopolistic competition

A Monopolistics Competition is a market structure int which many companies sell products that are similar but not identical.

the product is similar but not identical

-These iphone touch, they are similar but never be identical...

-These two dress are look the same but different color, design and diferent factories.

An examples of Monopolistics are physical charcateristics, location, service level and ADVERTISING (IMAGE,STATUS)

what does it mean?

A type of competition within an industry where:
1. all firms produce similar yet not perfectly substitutable products.
2. All firms are able to enter the industry if the profits are attractive.
3. All firms are profit maximizes.
4. All firms have some market power, which means none are price takers.

the controversy:

It sometimes happens in the reasonable dialog of economics that issues are raised that cannot be fully resolved to everybody's satisfaction. That has been the case with the theory of monopolistic competition. Some of the great economists of the 1920's and 1930's began the study of monopolistic competition. American economist Edward Chamberlin and British economists Joan Robinson and Abba Lerner all made important contributions to the theory, while British economist Roy Harrod and American economist George Stigler criticized it. As we have just seen, increasing differentiation of products could lead to nonprice competition with increasing prices and costs. Critics argued that a firm that was unwise enough to adopt this price-raising strategy would soon be undercut by a low-cost producer before very long; in other words, that a high-price situation could not be a long-run equilibrium. The critics also held that the monopolistic competition theory was too imprecise. While it may not be very easy to see, in this simple discussion, the p-competitive theory could be restated in very precise ways. The theory of monopolistic competition was harder to restate in precise terms. By about 1970, it seemed as if the critics had won. But during the 1980's and 1990's, monopolistic competition theory had made something of a comeback. Product differentiation and variety seemed to important to leave out of economic theory, and economists found ways to make this idea quite precise. It also seemed especially important in international trade: when both the United States and Germany import automobiles to one another, it must mean that automobiles are a differentiated product, and that the American cars are different from the German cars. The problem is that we still really do not know what that implies for efficiency. The theorists of the 1990's tend to put a great deal of stress on the tendency of nonprice competition to encourage innovation and the introduction of new products, rather than any tendency to raise prices. The discussion is still going on.