Advertisements
Advertisements
Question
What is Monopolistic Competition? Explain in detail the features of Monopolistic Competition.
Solution
Meaning:
Monopolistic competition is very realistic in nature. In this market, there are some features of perfect competition and some features of monopoly acting together. Prof. E. H. Chamberlin coined this concept in his book “Theory of Monopolistic Competition” which was published in 1933.
Definition:
According to Chamberlin, “Monopolistic competition refers to competition among a large number of sellers producing close but not perfect substitutes.”
Following are the main features of monopolistic competition:
- Fairly large number of sellers:
In monopolistic competition, the number of sellers is large but comparatively, it is less than that of perfect competition. Due to this reason, sellers’ behaviour is like a monopoly. - Fairly large number of buyers:
In this market, there are fairly large numbers of buyers. Consequently, no single buyer can influence the price of the product by changing his individual demand. - Product differentiation:
Product differentiation is the main feature of monopolistic competition. In this market, there are many firms producing a particular product, but the product of each firm is in some way differentiated from the product of every other firm in the market. This is known as product differentiation. Product differentiation may take the form of brand names, trademarks, a peculiarity of package or container, shape, quality, cover, design, colour, etc. This means that the product of a firm may find close substitutes and its cross elasticity of demand is very high. For example, mobile handsets, cold drinks, etc. - Free entry and exit:
Under monopolistic competition there is freedom of entry and exit, It means new firms are free to enter the market if there is profit. Similarly, they can leave the market, if they find it difficult to survive. - Selling Cost:
Selling cost is peculiar to monopolistic competition only. It refers to the cost incurred by the firm to create more demand for its product and thus increase the volume of sales. It includes expenditure on advertisements, radio and television broadcasts, hoardings, exhibitions, window display, free gifts, free samples, etc. - Close substitutes:
In monopolistic competition, goods have close substitutes for each other. For example, different brands of soaps, toothpaste, etc. - Concept of group:
Under monopolistic competition, Prof. Chamberlin introduced the concept of ‘Group’ in place of industry. Industry means the number of firms producing ‘identical’ products. A ‘Group’ means a number of firms producing ‘differentiated’ products that are closely related.
RELATED QUESTIONS
Give economic term:
The number of firms producing identical products.
Find the odd word out:
Selling cost:
Explain the meaning of monopolistic competition with its features.
Give economic term:
Very realistic competition in nature.
Study the following passage and answer the questions:
| Selling cost is categorized as expenses associated with marketing a company's brand, product, or service via media outlets. Selling cost is a cost paid by the company for print advertisements, radio or TV broadcasts, online, or via direct mail promotion. Selling cost is sometimes recorded as a prepaid expense on the balance sheet and then moved to the income statement when sales related to those costs come in. Selling cost is a way to increase a company's sales through brand or product awareness and to inform about new products or features. Several studies show that selling cost does, generally speaking, work to boost revenues. |
Questions:
- Define selling cost in your own words.
- Why do companies incur selling costs?
State with reasons whether you agree or disagree with the following statement:
Product differentiation is one of the important features of monopolistic competition.
