Features (Characteristics) of Monopolistic Competition
- Existence of many firms. There are many sellers and buyers involved in the exchange of closely related products.
- There is use of persuasive advertisement. Firms under this market structure use persuasive advertisement in order to convince the customers to buy their products and therefore to expand their market share.
- Freedom of entry and exit. When a firm makes profits in producing a certain commodity, other firms are free to enter in the production of the same commodity and when firms make losses, some firms are free to leave production.
- Sellers (producers) are price makers. Firms under monopolistic competition have the power to either their control output or price of the output to a certain extent.
- There is government intervention. The government can intervene by implementing certain policies like taxation, fixing prices of commodities in case firms over exploiting consumers etc.
- Profit maximization is the major goal of producers. That is, all producers in this market structure aim at maximizing profits and minimizing costs.
- Existence of brand loyalty. That is, certain consumers have a strong attachment to certain brands of commodities. For example Colgate, Coca-Cola products, Shell etc.
- The demand curve under this market structure is fairly elastic. This is because firms sell close substitutes and there is stiff competition. In addition, the demand curve is down ward sloping from left to right because each firm has the ability to control price or output a certain extent.
- There is existence of excess capacity in production both in the short and long run. Firms under this market structure do not fully utilize their resources to optimal level in the production process.
- There is existence of product differentiation. Product differentiation refers to the measures taken by producers under monopolistic competition to create artificial differences among products of the same category to make them appear as close substitutes.
CATEGORIES Economics
TAGS Dr. Bbosa Science
