GROUP 3 PRESENTATION

MONOPOLISTIC
COMPETITION
What is Monopolistic Competition?

Monopolistic competition exists when many

companies offer competing products or
services that are similar, but not perfect,
substitutes.
Monopolistic competition exists between a
monopoly and perfect competition,
combines elements of each, and includes
companies with similar, but not identical,
product offerings.
GROUP 3 PRESENTATION
FAST FOOD
RESTAURANTS
It's easy to enter
fast food industry
Products are
similar but not
identical
There are no
perfect substitute
for each product
GROUP 3 PRESENTATION
 CHARACTERISTICS
LOW BARRIERS LARGE NUMBER OF
TO ENTRY SMALL FIRMS
In monopolistic competition,
there are low barriers to entry, In monopolistic
meaning multiple companies competition, there are a
can enter the market and all large number of small
can compete for a market firms each with a small
share market share.

There are low barriers to entry

which means that firms can
make only normal profit in the
long run.
 CHARACTERISTICS
DIFFERENTIATED
PRODUCTS
In monopolistic competition,
firms sell differentiated products
that are close substitutes.
Differentiated products are
products that are sufficiently
similar to be distinguished as a
group from other products.
Competing companies
differentiate their similar products
with distinct marketing
strategies, brand names, and
different quality levels.
PRICE-SETTERS
Monopolistically competitive
firms are price-setters in the
sense that they are able to
set their prices by setting
their output levels.
Companies in monopolistic
competition act as price
makers and set prices for
goods and services. Firms in
monopolistic competition
can raise or lower prices
GROUP 3 PRESENTATION
 ADVANTAGES
1. There are no significant barriers to entry, therefore markets
are relatively contestable.
2. Differentiation brings greater consumer choice and variety
This provides greater choice and variety of products and
services for consumers to purchase.
3. Product and Service Quality – Development
4. Consumers become more knowledgeable of products
They can gain an understanding of the unique features and
aspects that certain products have compared to that of
others.
GROUP 3 PRESENTATION
 DISADVANTAGES
1. THEY CAN BE WASTEFUL - LIABLE OF EXCESS CAPACITY
They don’t produce enough output to efficiently lower the average cost and
benefit from economies of scale.
2. ALLOCATIVELY INEFFICIENT
As the demand curve is one which is downward sloping this then implies the
price has to be greater than the marginal cost for a monopolistically
competitive firm. Hence, it is allocatively inefficient as not enough of the
product gets produced for society to benefit however this would force the
company to lose money.
3. HIGHER PRICES
Is that as a result of firms having some market power, they can extenuate a
mark-up on the marginal cost of revenue.
GROUP 3 PRESENTATION
 PRICING POWER

Companies in monopolistic
competition act as price makers
and set prices for goods and
services. Firms in monopolistic
competition can raise or lower
prices without inciting a price
war
GROUP 3 PRESENTATION
BARRIERS TO ENTRY

ECONOMIES OF SCALE

NETWORK EXTERNALITIES
GROUP 3 PRESENTATION
 DEMAND CURVE
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THANK YOU
FOR
LISTENING