Benefits of monopolistic competition. Product Differentiation and Advertising 2019-02-20

Advantages and Disadvantages of Monopolistic Competition

In either case, a successful advertising campaign may allow a firm to sell either a greater quantity or to charge a higher price, or both, and thus increase its profits. Because each firm makes a unique product, it can charge a higher or lower price than its rivals. Similarly, if the existing firms are sustaining losses, some of the marginal firms will exit. Each firm has its own production and marketing policy. Advantages would mainly be choice there are a lot of different choices which is beneficial for consumers as this will satisfy our tastes.

The Advantages & Disadvantages of an Oligopoly

Advertising may also be considered wasteful, though most is informative rather than persuasive. A monopoly exists when a person or entity is the exclusive supplier of a good or service in a market. In the presence of coercive government, monopolistic competition will fall into. Advertising is all about explaining to people, or making people believe, that the products of one firm are differentiated from the products of another firm. Generally, companies in oligopoly become very settled with their ventures, as their operations and profits are guaranteed. Boulding has doubted upon the significance of this value also. For example, diners can review all the menus available from restaurants in a town, before they make their choice.

Advantages of monopoly

On the Basis of Monotony: Much controversy and honest doubt surrounded these issues. In the long-run, a monopolistically competitive market is inefficient. See: This is important for industries with high fixed costs, such as tap water and steel production. Before its break up Ma Bell had the best landline telephone service in the world. The producer can reduce the price of the product instead of spending on publicity. Concept of Group In place of Marshallian concept of industry, Chamberlin introduced the concept of Group under monopolistic competition.

The Costs and Benefits of Monopoly

Demand curves in monopolistic competition are not perfectly elastic: due to the market power that firms have, they are able to raise prices without losing all of their customers. For example, a generic brand of cereal might be exactly the same as a brand name in terms of quality. This means that product differentiation is key for any monopolistically competitive firm. Informed Consumers Monopolistic competition requires consumers to become more informed about the products and services available in the market. Successful research can be used for improved products and lower costs in the long term.

Product Differentiation and Advertising

For example, a train company can use its monopoly power to set high prices on peak services, but this allows the firm to subsidise unprofitable late-running services on Sat night, which is useful for people going out for the night. They are more likely, therefore, to create new, and better, products. Textbook examples of industries with market structures similar to monopolistic competition include restaurants, cereal, clothing, shoes, and service industries in large cities. Product differentiation: Each firm produces a product that is at least slightly different from those of other firms. A monopoly is obviously disadvantageous for the consumer.

How does a monopolistic competition benefit consumers?

However, they may be dynamically efficient, innovative in terms of new production processes or new products. First, the most important cause of the existence of excess capacity under monopolistic competition is down­ward-sloping demand curve or average revenue curve of the firm. Monopolistically competitive markets have a few barriers of entry and exit. The conception and the measure of excess capacity as enunciated above is based upon a particu­lar notion of ideal output. Rogers decides what price to charge.

The Advantages & Disadvantages of an Oligopoly

Causes of Excess Capacity: What factors are responsible for the existence of excess capacity under monopolistic competi­tion? It makes it difficult for smaller entities to establish a spot in the market. Product differentiation is the process of distinguishing a product or service from others to make it more attractive to a target market. In this manner, a monopoly reduces aggregate economic welfare. This select group of firms has control over the price and, like a monopoly, an oligopoly has high barriers to entry. Advantages of Monopolistic Competition: Regarding the advantages of monopolistic competition, the issue can be analyzed on many fronts. For example, retailers often constantly have to develop new ways to attract and retain local custom.

Excess Capacity under Monopolistic or Imperfect Competition: Meaning, Cause and Benefits

It is more efficient to have a monopoly and avoid this inefficient duplication of services. Every firm is limited in its size. A firm with total market power can raise prices without losing any customers to competitors. So, if Company X starts selling the widgets at a lower price, it will get a greater market share, thereby forcing Company Y to lower its prices as well. Considerations Though companies gain significant advantages from engaging in monopolistic competition, consumers experience no such benefits. Similarities One of the key similarities that perfectly competitive and monopolistically competitive markets share is elasticity of demand in the long-run.