In this article we consider a market structure where it operates a large number of vendors selling products rather close, but not perfect substitutes for each other, in other words the market of monopolistic competition.In such a market each producer on the one hand is a monopoly, as it offers its own version of the item, but it does have competitors who sell similar products, but with some excellent performances.
basis of the model and the term "market of monopolistic competition" were designed by Edward Chamberlain in 1933.
Features:
- significant number of sellers in the market.
- product differentiation.
- rigid non-price competition.
- relatively low barriers.
Consider these features in more detail.
large number of manufacturers
like perfect competition, monopolistic competition is characterized by a sufficiently large number of individual sellers.Each company has only a small market share of the industry.As a consequence, such firm characterized by small size.On the one hand, this feature eliminates the possibility of harmonizing the actions of and conspiracy to raise the price of goods or limited edition.On the other hand, small firms will not have an impact on the price level.
Product differentiation
This feature is for this key market structure, since it assumes the existence of vendors offering very similar, but not similar products with similar characteristics.These products are not for each other perfect substitutes.
grounds for differentiation:
- physical characteristics of the product.
- Area.
- Imaginary differences associated with the brand, packaging, advertising, the image of the company.
Also, the differentiation can be vertical and horizontal.Vertical differentiation implies the division of the goods on the quality "good" and "bad", for example, the choice between the TV "Temp" and «Samsung».Horizontal differentiation implies the division of the goods at about the same prices on those that match the preferences of the consumer and does not correspond.For example, cars used BMW and Audi.
Product differentiation enables firms to a limited influence on the market price, because many buyers are likely to remain committed to a specific mark with a slight increase in the cost of production.But the market is monopolistic competition involves only a very limited impact of the individual firm.The index of cross-elasticity of demand is high enough.
barriers to entry to the market
entry into the industry for companies is not difficult.This is due to a small initial investment, low economies of scale, small size of existing firms.However, the entry into the market of monopolistic competition is still more difficult than under perfect competition because the new company will have to find a way to attract buyers of existing firms.This will require the seller to additional costs.
price competition
Market monopolistic competition allows firms to two main strategies of non-price effect on sales:
- increasing differentiation.
- Change strategy of advertising and sales promotion.
Thus, monopolistic competition - the most realistic model for many industries, including the retail car market, household appliances, cosmetics and hairdressing services, and so on.With regard to real wealth is worth noting that the wholesale market for such goods, such as soap, toothpaste, is oligopolistic because not characterized by numerous, freedom of entry and small size, and the retail market is also an example of monopolistic competition.
