MEANING AND FEATURES OF MONOPOLISTIC COMPETITION

Ø  MONOPOLISTIC COMPETITION
MEANING AND ITS FEATURES
BUSINESS ECONOMICS-2
LECTURE 1

Ø  SHASHI AGGARWAL ECONOMIC AND LAW CLASSES

Ø  IMPERFECT MARKET

1.       PERFECT COMPETITION IS A MYTH AND MONOPOLY IS MYTH.IMPERFECT COMPETITION IS THE ACTUAL MARKET WHICH WE FACE IN OUR DAILY LIFE.

2.       IN 1926, PIERO SRAFFA MADE REFERENCE OF IT FOR THE FIRST TIME

3.       BUT CONCEPT IS DEVELOPED BY E.H CHAMBERLIN AND MRS JOAN ROBINSON IN 1933 IN THEIR RESPECTIVE BOOKS,THE THEORY OF MONOPOLISTIC COMPETITION”(CHAMBERLIN)

4.       AND THE ECONOMICS OF IMPERFECT COMPETITION

Ø  MARKET FORMS

1.       PERFECT COMPETITION

2.       IMPERFECT COMPETITION

a.       MONOPOLISTIC COMPETITION

b.       OLIGOPOLY

c.        DUPOLY

3.       MONOPOLY

Ø  MONOPOLISTIC COMPETITION

1.       COMBINATION OF BOTH PERFECT COMPETITION AND MONOPOLY

2.       PERFECT COMPETITION BECAUSE THE NUMBER OF SELLERS IS LARGE AND AN INDIVIDUAL SELLER CAN NOT INFLUENCE THE MARKET PRICE

3.       MONOPOLY BECAUSE EACH FIRM HAS PROTECTED MARKET FOR ITS OWN PRODUCT AND HAS A NEGATIVELY SHAPED DEMAND CURVE

4.       THAT MARKET SITUATION IN WHICH LARGE NUMBER OF PRODUCERS PRODUCE THE GOODS WHICH ARE CLOSE SUBSTITUTE OF EACH OTHER

5.       PRODUCT DIFFERENTIATION IS THE HALL MARK OF MONOPOLISTIC COMPETITION

 •     MEANING AND DEFINITION

•     J.S BAINS,” MONOPOLISTIC COMPETITION IS MARKET STRUCTURE WHERE THERE IS LARGE NUMBER OF SMALL SELLERS, SELLING DIFFERENTIATED BUT CLOSE SUBSTITUTE PRODUCTS.

•     LEFTWICH,” MONOPOLISTIC COMPETITION REFERS TO THAT MARKET ORGANIZATION IN WHICH THERE ARE MANY OF SELLERS OF A PARTICULAR PRODUCT BUT THE PRODUCT OF EACH SELLER IS IN SOME WAY DIFFERENTIATED IN THE MINDS OF CONSUMER FROM THE PRODUCT OF EVERY OTHER SELLER

•   •     FEATURES

1. LARGE NUMBER OF FIRMS AND BUYERS: THE NUMBERS OF THE FIRMS IS LARGE IE 25,40,50 OR 70. THERE ARE MANY AND SMALL ENOUGH BUT NONE CONTROL THE MAJOR PORTION OF TOTAL OUTPUT. IT CAN FOLLOW AN INDEPENDENT AND OUTPUT POLICY.
2. PRODUCT DIFFERENTIATION MEANS WHEREIN THE BUYER CAN DISTINGUISH ONE PRODUCT FROM THE OTHER. IT ARISES DUE TO DIFFERENCE IN SHAPE,COLOR,DURABILITY,QUALITY AND SIZE ETC PRODUCT DIFFERENTIATION IS DONE BY DIFFERENCE IN TRADE MARK,NAME,DESIGN,PACKING,COLOR ,FRAGRANCE AND WORKMANSHIP

3. FREEDOM OF ENTRY AND EXIT OF THE FIRMS: FREE TO ENTER AND LEAVE THE GROUP
4. SELLING COSTS: VERY SIGNIFICANT FEATURE. SPENDING OF HUGE FUNDS ON ADVERTISEMENT TO PROMOTE AND PUSH THE SALE OF THE PRODUCT
5. PRICE CONTROL:-FIRM HAS A INDEPENDENT PRICE POLICY
6. LIMITED MOBILITY OF FACTORS OF PRODUCTION
7. IMPERFECT KNOWLEDGE OF THE MARKET CONDITIONS
8. NON PRICE COMPETITION:-IMPORTANT FEATURE AND FIRMS THROUGH NON PRICE COMPETITION TRY TO WIN THE CUSTOMERS. HERE PRICES ARE NOT REDUCED BUT ADDITIONAL FREEWAY IS GIVEN LIKE BOWL WITH MAGGI PACK ETC