Monopolistic Competition

Monopolistic Competition Ji Hyun, Sayaka, Johan, Avu, Oat

Nature of Monopolistic Competition
High profile firms with high recognition brands
selling similar products
Branding and advertising
differentiated products as superior
unique aspects
attracted by supernormal profits
supernormal profit : profit that exceeds the normal profit or return from the input factors

Assumptions
Size and Number of Firms
relatively many but some small
Barriers to Entry
relatively low
Consumer Sovereignty
high

Determining costs, revenues and profit Price Output Short-run

Determining costs, revenues and profit Price Output Demand (AR)

Determining costs, revenues and profit Price Output Demand (AR) MR

Determining costs, revenues and profit Price Output Demand (AR) MR MC

Determining costs, revenues and profit Price Output Demand (AR) MR MC AC

Determining costs, revenues and profit Price Output Demand (AR) MR MC AC MC=MR Q1

Determining costs, revenues and profit Price Output Demand (AR) MR MC AC MC=MR Q1 P1 C1

Determining costs, revenues and profit Price Output Demand (AR) MR In the long-run

Determining costs, revenues and profit Price Output Demand (AR) MR MC In the long-run Q2

Determining costs, revenues and profit Price Output Demand (AR) MR MC In the long-run Q2 AC P1, C1

Pros and Cons
The best thing about monopolistic competition is product differentiation
Unlike perfect competition, products aren't generic, they vary in style, taste etc.
Unlike monopoly, there are multiple products for varying needs
Therefore, both the producer and consumer have market sovereignty
However, like a monopoly, there is some inefficiency, and there are not long term profits

Pros & Cons vs. Perfect Competition
In the short run, monopolistic competition markets enjoy supernormal profits as MC = MR
There is product differentiation, unlike in a perfect competition
There is producer sovereignty, unlike in a perfect competition

However, firms not caring about each other causes lack of efficiency in firms
Firms have extra capacity
Firms produce too little

Pros and Cons vs. Monopoly
Product differentiation: Monopolies have a single "unique" product, while monopolistic competitions boast many different products
Very few barriers to enter the market
Consumer sovereignty with ability to choose

The single firm has absolute power
Slightly better in the long term

Examples
Soft drink companies
Coca-cola, Pepsi...
Sports shoes companies
Adidas, Nike...
petrol stations, restaurants, hairdressers and builders...

Advertising Techniques
Vending machines
Easy access to both students and faculties
Provide sport teams with uniforms
P.E. Uniforms
Sport events:
Baseball: shoot out shirts to audience
Basketball: shoot out competition, winner get a free tee shirt
Use well-known teachers/students as models for our products
Available in various styles/sizes

Styles
Ji Hyun-IT
Ji Hyun-IT Baby
Ji Hyun-IT Formal
Ji Hyun-IT Active
Ji Hyun-IT Goth

Ji Hyun-IT
...
Model : Mr. James Lindop
History / Geography Teacher
"I love Ji-Hyun IT!"

Ji Hyun-IT Baby

Model: Deepak Parwani
Student / Ji-Hyun IT Lover
"Ji-hyun IT is the ____"

Ji Hyun-IT Formal

Ji Hyun-IT Active

Ji Hyun-ITGoth

Monopolistic Competition

by Johan on Feb 10, 2010

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Monopolistic Competition — Presentation Transcript