MONOPOLISTIC COMPETITION

(Summary)

Concepts of Monopolistic Competion

 Similar but not identical products

 Have limited control on making price and to reduce supply
 Product differentiation
 Advertising, marketing and sales promotion

Basic Characteristics

 Large number of independent sellers and buyers

 The relative market shares of all sellers are insignificant and more or less equal
 Conditions of entry and exit are relatively easy

Product Differentiation

 The process of distiguishing the product or services from others.

Pricing power

 Ability of a firm to set higher prices without losing customers. In Monopolistic Competition,
firms are price makers.
Decision-Making

 Firms make independent decisions, that one firm's decision does not set of a chain reaction.
Advertising in Monopolistic Competition

 A marketing strategy make known to customers how one product is differentiated from others.

QUESTIONS: Fill in the blanks and Identification

1. ____________ and 2. ________ is common among firms in monopolistic competition and some
economist criticize this as wasteful.

3. _____________ have little power to set curtail supply or raise prices to increase profits.

4. Type of product in Monopolistic Competition

5. This is the only characteristic that distinguishes monopolistic competition from perfect
competition.

6.