Economy

Monopolistic competition

When we talk about monopolistic competition, we are referring to the competition that exists between the different monopolies, it is a type of competition in which there is a quite significant amount of producers that act within the market without a dominant control given by them. It is frequent to observe it in product markets that we normally observe in supermarkets, all of these with specific and particular characteristics that make them different from each other, but with a certain resemblance to enter into competition with other producers.

Monopolistic competition

Related topics

Duopoly, monopolymonopsony, oligopoly

What is monopolistic competition?

Monopolistic competition is a type of competition in which producers sell products in a market, but the products are not the same, they differ from each other by brand, quality or location. Within monopolistic competition, a company that manufactures products takes other companies' prices as data and overlooks the impact of its own prices on other companies' prices.

This competition is not necessarily for prices, but for product quality, service, location, advertising and packaging types. Every seller who offers a product has the ability and advantage to raise or lower prices. Within a monopolistic market, companies behave and have monopoly characteristics, including the use of market power to generate large profits. In theory, companies that compete in a monopolistic manner maximize their profits, because they are small, and entrepreneurs and owners actively participate in all the management of their businesses. In short term, they have excellent profits.

Characteristics of monopolistic competition

Advantages of monopolistic competition

Disadvantages

Examples

A very common example of monopolistic competition is, for example, restaurants. They serve different dishes or menus at different prices, providing different types of local utilities. Furniture stores sell different types of pieces made of different materials. Retailers selling clothing have a broad range of prices. Another example that we can mention are books, because their prices vary depending on the subjects and the public to be reached.

Written by Gabriela Briceño V.
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