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Friday, 6 May 2011

Characteristics of Monopolistic Competition

DEFINITION OF MONOPOLISTIC COMPETITION :- A market situation in which there are large number of small firms which produce and sell similar but identical commodities.

There are various goods like soap, cloth and toothpaste which are produced under monopolistic competition.

IMPORTANT CONDITIONS OF MONOPOLISTIC COMPETITION

Following are the important conditions of monopolistic competition :

1. SELLERS AND BUYERS :- There are large number of buyers and sellers in the monopolistic market. Generally the number of firms are within 25 to 50.

2. SMALL SHARE OF SUPPLY :- The firms act independently and produce a small share of the total out put.

3. DIFFERENTIATED PRODUCT :- The product of each firm can be differentiated by trade mark or packing.

4. ENTRY OF NEW FIRMS :- In a monopolistic competition, new firm can easily enter into the market because the size of the firms is small in the market.

5. INEFFICIENT FIRM IN THE MARKET :- In-efficient firms also live in the market side by side and they sell the defective product.

6. CONTROL OVER PRICE :- A firm has only limited control over the price of the product according to its supply.

7. ELASTIC DEMAND CURVE :- The demand curve of the firm is negatively slopped when there are many firms which are producing a similar commodity, the demand for the product of each firm is elastic.

8. ADVERTISING :- In a monopolistic competition firms spend a lot of money on advertisement to attract the consumers.

9. STIFF COMPETITION :- There is a stiff competition among the firms for the sale of a particular brand not only in price but also in the quality of the product. The firms give more importance to the trade marks and brand names.

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