Question

Discuss one of the following market structures – Monopolistic Competition or Oligopoly. In your discussion include assumptions, examples, conclusions, efficiency, and comparisons with other market structures. (You may want to use a graph.)

Answer 1

Monopolistic Market

The concept of monopolistic competition was introduced by Prof. Chamberlin. It is a market with many sellers for a product but the products are different in certain respects. The features of monopoly and competition are combined in this market. Hence, it is called monopolistic competition. Example: Cosmetics, Soaps etc.

Comparisons with other market structures;

This market is combination of monopoly and perfect competitive market, so here in this market price is neither determined by forces of market demand and market supply nor by individuals. But it is determined on the basis of product and in conclusion of selling cost as well ie. how much their products is different from others and how much they've incurred advertisement cost on such product. So main features of this market is prroduct differentiation, unlike perfect condition (main features is price taker) and Monopoly market ( Price maker ).

Assumptions of monopolistic Market;

1. A considerable number of producers:
A commodity is produced by a considerable number of producers. Since there are more number of producers no one controls the output in the market. Competition will be high among the producers.

2. Product differentiation:
The commodity of each producer will be different from that of other producers. The difference may be due to material used, colour design, smell, packaging, trademark etc. Because of this each product will have specific identification in the market.

3. Entry and exit:
Firms are allowed to enter into production and leave the market. When profits are high new firms will join. In case of losses inefficient firms will leave.

4. Selling costs:
An important feature of this market is every firm makes expenditure to sell more output. Advertisement
through newspapers, journals, electronic media, sales representatives, exhibitions, free sampling help to promote the sales. Lot of expenditure is made on these items under this market.

5. Imperfect knowledge:
Buyers will have an imperfect knowledge about commodities. Sometimes products may be the same but consumers think that a particular good is superior than another. Due to the advertisements and other devices consumers purchase the commodities.

6. Price decision:
Each firm produces a commodity with small differences. It is due to this reason that a firm will decide the price for its product. The demand curve for a firm will be downwards sloping and more elastic.

This market has lots of potential to the Producer and value addition to the coustomers that's why efficiency of this market is rapidly growing because nowadays this is the usual market that really exist, in real world.

Conclusion:

The recognition of product differentiation provides the rationale for the selling expenses (particularly expenses for advertisement) incurred by any firm under monopolistic competition. The firm desires to accentuate the differences between its own brand and other brands of the product available, through its advertising and other selling activities. Thus, selling expenses have a definite role in strengthening the Preference of the consumers for the advertised product, and making the demand for the product relatively inelastic in this market.

That's enough for such type question, hence no need of graph.