.I. Introduction
A. A monopolistically competitive market
exists when a substantially
large number of firms serve a market with relatively
differentiated products.
B. An example would be merchandising
firms of all types selling products such as shoes, shirts, TV's, groceries,
etc.
C. Product differentiation
1.Some feel it is real and important
while others feel it is artificial and unimportant.
2. Examples
a.
Non-price competition
1.
Product quality
2.
Product image
3.
Customer service
4.
Store environment and image
b.
Condition for sale
1.
Mail order
2.
Home delivery using the internet
3. Bidding on the internet
C. Some control over price exists and demand tends
to be
more elastic than with monopoly or oligopoly markets.
II. Monopolistic competition
III. Economic analysis of monopolistic competition
A. P is high compared to pure
competition
(P> MR = MC)
B. Quantity will be restricted
causing ATC to be higher than
that indicated by the curve's lowest point.
C. Tends to be more competitive
than monopoly and oligopoly.
D. Some believe economic profit
tends toward zero as the number of firms adjust to varying
profit levels.
IV. Attitudes differ toward monopolistically competitive companies using
advertising to emphasize product differentiation.
| For |
Against |
| Informs potential customers |
Persuades potential |
| Finances national
communication
|
Social costs
(billboards)
|
| Rewards and thus stimulates
technological advancement and innovation
|
Adds little to a product
|
| Increases output resulting
in economies of scale and lower ATC
|
Ads cancel each other's
effect, output doesn't
change, ATC increases |
| Promotes spending
and employment
|
Promotes of spending can
not be proven. |
| Consumer Protection, False Advertising
from the Florida Attorney
General. |
V.
A free business game about monopolistic competition
from Economics Web Institute
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