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Monopolistic practices
- 1. MONOPOLISTIC PRACTICES &COMPETITION COMMISSION IN INDIAN ECONOMY Presented By G.Abirami B.Gayathri R.Gowsalya I.Preeithi K.Sowmiyaa J.Sridevi R.Veena M.B.A – Ist Year
- 2. INTRODUCTION Monopolistic competitionis a type of imperfect competition such that many producers sell products that are differentiated from one another (e.g. by branding or quality) and hence are not perfect substitutes . In monopolistic competition, a firm takes the prices charged by its rivals as given and ignores the impact of its own prices on the prices of other firms Main features of monopolistic competition Many sellers Product differentiation: similar but non-identical products Free entry and exit
- 3. MAIN FEATURES ManySellers There are many firms competing for the same group of customers. Product examples include books, CDs, movies, computer games, restaurants, piano lessons, cookies, furniture, etc. This feature of monopolistic competition is shared with perfect competition. So, the decisions made by one firm do not affect other firms in any perceptible way
- 4. MAIN FEATURES ProductDifferentiation Each firm produces a product that is at least slightly different from those of other firms. Rather than being a price taker, each firm faces a downward-sloping demand curve. Demand Quantity Price
- 5. MAIN FEATURES FreeEntry or Exit Firms can enter or exit the market without any difficulty. The number of firms in the market adjusts until economic profits are zero. This is another feature of monopolistic competition that it shares with perfect competition
- 6. MARKET STRUCTURE Marketstructure is the focus real-world competition. Market structure refers to the physical characteristics of the market within which firms interact. Market structure involves the number of firms in the market and the barriers to entry. Perfect competition, with an infinite number of firms, and monopoly, with a single firm, are polar opposites. Monopolistic competition and oligopoly lie between these two extremes.
- 7. MONOPOLISTIC COMPETITION Monopolisticcompetition is a market structure in which there are many firms selling differentiated products. There are few barriers to entry. Oligopoly is a market structure in which there are a few interdependent firms. There are often significant barriers to entry.
- 8. CHARACTERISTICS Monopolistic competitionis a market with the following characteristics: A large number of firms. Each firm produces a differentiated product. Firms compete on product quality, price, and marketing. Firms are free to enter and exit the industry.
- 9. COMPETITION COMMISSSION Competitionrefers to economic rivalry amongst Enterprises to control market for products (goods and services) Level of Competition does not depends Number of players in an industry but on degree of contestability •Contest ability involves ease of entry and exit •Concept of relevant market: Relevant geographical
- 10. BENEFITS OF COMPETITION Competition in markets promotes efficiency leads to higher productivity punishes the laggards enhances choice, improves quality reduces costs facilitates better governance
- 11. MAIN FEATURES OFCOMPETITION ACT -1 & 2 Prohibits Anti -Competitive Agreements. Prohibits Abuse of Dominant Position. Provides for Regulation of Combinations Main features of Competition Act -2 Price fixing , Bid rigging Quantity limiting Market sharing
- 12. COMPETING ON QUALITY,PRICE & MARKETING Product differentiation enables firms to compete in three areas: quality, price, and marketing. Quality includes design, reliability, and service. Because firms produce differentiated products, each firm has a downward-sloping demand curve for its own product. But there is a tradeoff between price and quality. Differentiated products must be marketed using advertising and packaging.
- 13. TYPES OF MARKETSTRUCTURES • Tap water • Cable TV Monopoly • Novels • Movies Monopolistic Competition • Tennis balls • Cigarettes Oligopoly Number of Firms? Perfect • Wheat • Milk Competition Type of Products? Identical products Differentiated products One firm Few firms Many firms 13
- 14. MONOPOLISTIC Vs PERFECTCOMPETITION Excess Capacity There is no excess capacity in perfect competition in the long run. Free entry results in competitive firms producing at the point where average total cost is minimized, which is the efficient scale of the firm. There is excess capacity in monopolistic competition in the long run. In monopolistic competition, output is less than the efficient scale of perfect competition.
- 15. MONOPOLISTIC COMPETITION INTHE SHORT RUN Quantity0 Price Profit- maximizing quantity Price Demand MR ATC (a) Firm Makes Profit Average total cost Profit MC 15 These profits will not last. Short-run economic profits encourage new firms to enter the market. This reduces the demand faced by firms already in the market (incumbent firms) Incumbent firms’ demand curves shift to the left. Their profits fall…
- 16. MONOPOLISTICALLY COMPETITIVE FIRMIN SHORT RUN Short-run economic losses encourage firms to exit the market. This: Decreases the number of products offered. Increases demand faced by the remaining firms. Shifts the remaining firms’ demand curves to the right. Increases the remaining firms’ profits.
- 17. MONOPOLISTICALLY COMPETITIVE FIRMIN LONG RUN As in a monopoly, price exceeds marginal cost. Profit maximization requires marginal revenue to equal marginal cost. The downward-sloping demand curve makes marginal revenue less than price. As in a competitive market, price equals average total cost. Free entry and exit drive economic profit to zero
- 18. Contd… Zero EconomicProfit In the long run, economic profit induces entry. And entry continues as long as firms in the industry make an economic profit—as long as (P > ATC). In the long run, a firm in monopolistic competition maximizes its profit by producing the quantity at which its marginal revenue equals its marginal cost, MR = MC.
- 19. MONOPOLISTIC COMPETITION INLONG RUN Quantity Price 0 Demand MR ATC MC Profit-maximizing quantity P = ATC 19 We have seen that in the long run profits cannot be positive or negative. Therefore, profits must be zero! Note that P = ATC > MR = MC in long run equilibrium. MR = MC
- 20. ADVERTISING When firmssell differentiated products, each firm has an incentive to advertise in order to attract more buyers to its particular product. Under perfect competition, there is no such incentive Under monopoly, there is some incentive to advertise, but not a whole lot. After all, the monopolist has no rivals.
- 21. Contd… Firms thatsell highly differentiated consumer goods—such as over-the-counter drugs, perfumes, soft drinks, breakfast cereals—typically spend between 10 and 20 percent of revenue on advertising. Firms that sell industrial products—such as drill presses and communications satellites—typically spend very little on advertising Firms that sell undifferentiated products—such as wheat, peanuts, or crude oil— spend nothing at all Overall, about 2 percent of total revenue, or over $200 billion a year, is spent on advertising.
- 22. Contd… Critics ofadvertising argue that firms advertise in order to manipulate people’s tastes. They also argue that it impedes competition by implying that products are more different than they truly are. Defenders argue that advertising provides information to consumers They also argue that advertising increases competition by informing consumers of their options and enabling them to do comparison shopping
- 23. BRAND NAMES Economistshave argued that brand names may be a useful way for consumers to ensure that the goods they are buying are of high quality. providing information about quality. giving firms incentive to maintain high quality. The question, however, is whether brand name products are better than generics by an extent that justifies their higher prices
- 24. CONCLUSIONS Competition enforcementleads to consumer welfare directly and indirectly Stakeholders need to recognize their role in promoting competition Policymakers/Government need to prioritize competition reforms CCI to remain independent CCI to create a public buy in Consumer movement: natural allies of a competition regime
- 25.