Thursday 11 October 2012

Define monopolistic competitive market?




Monopolistic competition is a blend of monopoly and perfect completion. It is a market situation in wile there are relatively large number of small firms which produces similar but not identical commodities e.g. a firm sell “lux soap”, but there are firms which also sell similar product (not identical) with deferent brand names like rexona, safeguard etc. the firm supplying lux soap enjoy a monopoly over the sale of its own product.

This is the most famous form of markeet model, because majority of the markeet produce goods under this markeet.  

Characteristic:

Following are the salient feature of monopolistic completive market:

1.                 Sellers and buyers:

There are large number of buyers and sellers, but not a much an in perfect competition. Generally the numbers of firms are within 25 to 50.

2.                 Small share of supply:

The firms perform individually and produce a small share out of total market.

3.                 Differentiated products:

The product of each firm can be differentiated with different trade market, packing and labeling. So every firm charge different price from others.

4.                 Entry of new firms:

 A new firm can easily enter without any hesitating in industry.

5.                 Control over price:

A firm has a limited control over the price, because the products of each firm are closely substitution for one another.

6.                 Elastic demand curve:

The firm demand curve is negatively slopped. There are many firms which are producing smaller products. Thus the demand for each firm product is highly elastic and the case is vice versa if the firms are small.

7.                 Advertisement and propaganda:

In monopolistic competition firms spent a lot of money on advertisement and propaganda, in order to attract more and more customer.

8.                 Stiff competition:

There are stiff competitions among the firms for the stiff of particular product, not only in price but also in quality of the product.

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