Monopolistic Competition Goup

International School of Business & Media, Nande, Pune – 2020 – 22
Microeconomics Project
TOPIC:- MONOPOLISTIC COMPETITION

GROUP 6
NAMES ROLL No.
1. Snigdha pappu 20202260

2. Mayuri pounikar 20204413
3. Shraddha Deshmukh 20202254
4. Priyam shree 20202255
5. Utkarsh Balamwar 20202256
6. Abhishek Singh 20202253
7. Jayant Thenge 20202260
8. Tejaswi Gupta 20201112
INTRODUCTION
The theory of monopolistic competition was developed by the

American economist Edward Chamberlin (1899 - 1976).
He was dissatisfied with two extreme theories that existed

at the time – perfect competition and monopoly.
He wanted to devise something more realistic that would

sit between the two existing theories.
Monopolistic competition is a market structure in which there

are many firms selling differentiated products.
MONOPOLY COMPETITION
Meaning Similar but differentiated product
Monopolistic competition is a type

of imperfect competition such that
many producers sell products that
are differentiated from one another A Large number of firms
(e.g. by branding or quality) and
hence are not perfect substitutes.
Monopolistic
Competition
Low barriers to entry
Market Power –Limited

MONOPOLISTIC COMPETITIVE MARKETS
A
Have products that are highly differentiated, meaning that there is a perception that the goods
are different for reasons other than price.
There is some degree of market power, meaning producers have some control over price
Firms can freely enter and exits in the long-run also Firms can make decisions independently
B
Have many firms providing the good or service, Buyers and sellers have imperfect information
CHARACTERISTICS
Buyers and Sellers
5 do not have perfect
information
• Product Differentiation
• It has both the

3 • Large no. of sellers
and Buyers
elements of Monopoly
and Perfect
1 Competition
• Non Price Competition
6
• Free Entry and Exit
Demand is more • Price decision
4 elastic than with
Oligopolistic
/Monopolistic market
Multiple dimension of
2 Competition
PRODUCT DIFFERENCIATION
Product differentiation implies that products are different

Location Price Features enough that the producing firm exercise a “mini -monopoly”
over their Product.
The firms compete more on product differentiation than on

Product can
Price.
be
Marketing
differentiated Reliability
efforts
based on:
Competition is strong and plenty of consumers switching

takes Place.
After-sale Performance
Looks and Quality
services
COMPARISON
MONOPOLISTIC COMPETITION
IN LONG RUN
qLong-run equilibrium of the firm under monopolistic

competition. The firm still produces where marginal
cost and marginal revenue are equal; however, the
demand curve (MR and AR) has shifted as other firms
entered the market and increased competition. The
firm no longer sells its goods above average cost and
can no longer claim an economic profit.
q In the long run, other firms enter the market and the
benefit of differentiation decreases with competition;
the market becomes more like perfect competition
where firms cannot gain economic profit.
MONOPOLISTIC COMPETITON IN SHORT
RUN
q In the short run the profits made by businesses competing in this type of
market structure can be at any level. Strong brand loyalty can make consumer
demand less sensitive to price. The short run supernormal profit attracts new
producers into the market, and so normal profits only are made in the long run
equilibrium
q As more firms enter the market, the demand curve facing any existing firm
moves to the left (as consumers choose the products offered by new or
alternative companies).
q The demand curve continues to move to the left until it is tangential to the AC
curve. At this point, the monopolistically competitive firm is at its profit-
maximising level of output (because MR = MC) but is making normal profit
(because AR = AC).
q Short-run equilibrium of the firm under monopolistic competition. The firm
maximizes its profits and produces a quantity where the firm's marginal
revenue (MR) is equal to its marginal cost (MC).
q The firm is able to collect a price based on the average revenue (AR) curve.
The difference between the firm's average revenue and average cost,
multiplied by the quantity sold (Qs), gives the total profit.
MONOPOLISTIC COMPETITION –SUPER NATURAL NATURAL AND
ECONOMIC LOSS GRAPH
NON-PRCING COMPETITION
CHARACTERISTICS OF NON PRICING COMPETITION
01 Competition by Quality
02 Perception and Branding
03 Product Differentiation
04 Sales Structure
EXAMPLES OF NON PRICING COMPETITION
Loyalty Cards
Advertising
Direct contact to customers
After sales Service
Unique Selling Points

CASE STUDY
RUNNING SHOES MARKET
• There are a number of brands if one is searching for

running shoes like Adidas, ASICS Nike, etc. The market of
the running shoes seems to be in full competition on the
one hand as there are many brands present competing
with each other as there are low barriers to entry and exit.
• However market of the running shoes seems to be under
the monopolistic structure on the other hand because the
uniqueness which each of the brands of shoe offers gives
them the power to charge the price which is different from
the other competitors.
• The companies can increase some of the features in their
product and charge the consumer accordingly for the new
feature. If the consumer finds the new feature worth for its
price then he would buy it otherwise not.
FAST FOOD COMPANY
• The Fast Food companies like the McDonald and Burger King who
sells the burger in the market are the most common type of
example of monopolistic competition. The two companies
mentioned above sell an almost similar type of products but are not
the substitute of each other.
• Now which product the particular consumer likes the most and of
which company totally depends on him. Apart from the burger,
other products are also sold by these companies like French fries
soft drinks, etc. All these products of the mentioned companies are
of similar nature but there is no congruency between the products
sold by the two as each one has a slightly different shape and
taste. This is the monopolistic structure.
THANK YOU

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International School of Business & Media, Nande, Pune – 2020 – 22

TOPIC:- MONOPOLISTIC COMPETITION

NAMES ROLL No.

1. Snigdha pappu 20202260

The theory of monopolistic competition was developed by the

He was dissatisfied with two extreme theories that existed

He wanted to devise something more realistic that would

Monopolistic competition is a market structure in which there

Meaning Similar but differentiated product

Monopolistic competition is a type

Low barriers to entry

Market Power –Limited

• It has both the

Product differentiation implies that products are different

The firms compete more on product differentiation than on

Competition is strong and plenty of consumers switching

qLong-run equilibrium of the firm under monopolistic

02 Perception and Branding

Direct contact to customers

After sales Service

Unique Selling Points

• There are a number of brands if one is searching for

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