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In: Economics

Aside from advertising, how can monopolistically competitive firms increase demand for their products? Give examples.

Aside from advertising, how can monopolistically competitive firms increase demand for their products? Give examples.

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Expert Solution

Monopolistic firms is a market structure which combine the properties of monopoly and competitve markets. It is market where there is a freedom for entry and exit.They have an inelastic demand curve and so they can set prices. In long run the supernominal profits will encourage more firms to enter the market.In monopolistic competition, firms do produce differentiated products, so they are not price takers. Some firms will be better at brand diffrentiation, it helps to get more profits. New firms will not be seen as a close substitue. Many industries, we may describe as monopolistically competitive are very profitable, so the assumption of normal profit is too simplistic. These are some limitations of monopolistic competition. Some examples are restaurants where compete on quality of food as much as price. Hairdressers,Clothings , TV Programmes are some examples of this market. Firms are price makers and with a downward slopping demand cuve. Each firms make a unique product, it can charge flexible prices. Here the profits are made in short term. They are based in convincing the market that thier products are different in type, if not in price. It is largely based on the nature of pacakaging and advertising. Firms operation under monopolistic competition usually hav to engage in advertising. Common methods of advertising for these firms are through local press and radio, cinema, social medias. Advertising is all about explanation to people or making people belive that the products of one firm are differentiated from the products of another firm. Other than advertising there are a lot of methods to increase the demand in market. Vertical and Horizontal product diffrentiation is one of the method. They can launch diffrent types of products to attract the customers .Also change in flavour and taste also increses hte demand. We know that some people more like salt flavour and some like more spicy. So producing different types so flavours also help to attract coustmers. The packaging is also a factor to the demand. The firm should deliver the product as much neat they can. The attractive package make the demand increases. We can see that some cars launchs different variants of same car, it always help to get more customers. Proper reach of products by diffrents ways will always help the firm to increases the demand.


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