Question

Why does Monopolistic Competition matter?

Answer 1

1) Monopolistic competitions is a business atmosphere where competitiors can set and manipulate prices with little to no consequences as a result of their strong product differentiation. Companies that purvey products in this setting have several advantages.

PRICING

The ability to set higher prices is a primary advantage of monopolistic competition. These companies can determine the item's price points, which tend to be much higher than perfectly competitive industries by virtue of their branding efforts. Monopolistic competitions is one of reason prescription drugs can be costly.

PRODUCT QUALITY AND DEVELOPMENT

An advantage of monopolistic competitions is that it enchanges a firm's ability to improve a product's quality through its brand. Economists defend branding as a way to enhance trust and reliability to the consumer. Brands strengthen the need to maintain high quality based on the bussiness's financial stake in its reputation.

PRICE DESCRIMINATION

Monopolies can engage in price discrimination, which is charging different prices to different consumer groups. Companies in a monopoly have the option of determining which customers receive discounts or premiums on goods and services, such as senior citizens or students receiving discounts.

CONSIDERATIONS

Though companies gain significant advantages from engaging in monopolistic competition, consumers experience no such benefits. Branding does not always signal the best value, as similar products perform similar functions as other goods at a fraction of the price. Additionally, price discrimination reduces consumer surplus. In the case of regressive price discrimination or, charging the poor at a higher percent than the wealthy, social welfare is reduced, as well.