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market structures. The markets that we deal with in the real world, either have many sellers selling different varieties of a product (such, However, in the real world, most firms do not fit into either of the, -11), 63, MONOPOLISTIC, 5, COMPETITION, rm., 5.1, Introduction, Features of Monopolistic Competition, Short-run Equilibrium Imp, Long-run Equilibrium - Group Equilibrium, 5.2, 5.3, 5.4, 5.5, Production and Selling Costs, 5.6, Role of Advertisement, 5.7, Monopolistic Competition Vs. Perfect Competition, 5.1 INTRODUCTION, ing, wo, ys., By now, we are familiar with two market forms, perfect competition, iny, and monopoly. Both these are extreme markets. In perfect, se., competition, large number of sellers sell identical products at the, hat, Same price. Also, in the long run, freedom of entry and exist of firms, ensures that all firms make only normal profit. Such markets are, pre, extremely difficult to find in the real world.On the other extreme is, onopoly. A monopolist sells a product with no close substitutes, puts artificial barriers to the entry of new firms. This ensures, at a monopolist earns supernormal profits in the long run.

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64, Business Economics- II (F.Y.B.Com S., as garments, restaurants) or a few sellers dominating marke, either differentiated products (automobiles, airlines) or commo, (steel, cement, oil). The first is termed as monopolistic, and the second as oligopoly., competis, Classical and neo-classical economists largely confined their the, to the analysis of perfect competition. During 1920s and 19, economists began to study the more realistic forms of markets, formulate models to represent them. Two models of monopol, competition were developed independently. In 1933, E., Chamberlin' published the Theory of Monopolistic Competiti, In the same year, Joan Robinson? published The Economics, Imperfect Competition. Both the models analysed a market struct, that displayed characteristics of perfect competition as well as, monopoly. Hence, it is largely referred to as monopolist, competition., In a monopolistic competitive market, a producer due to proda, differentiation, acquires some degree of monopoly powe, Advertisement, the main form of selling cost enables him, strengthen that monopoly element. The above mentione, characteristics enables the producer to develop a certain degreed, brand loyalty which further increases the monopoly power. T, monopolistic competitive firm inspite of its advantage of monope, power cannot be complacent in its efforts. He requires to be alwa, in a state of competitive environment, lest he may finally require, exit the market. In India we have products like soaps, garmens, electronics, as examples., Imperfect competition, a market form developed by Prof. Joa, Robinson, includes all the market forms other than perfe, competition. The fact that all these markets do not fulfil th, conditions prevailing in perfect competition brings them under t, banner of imperfect competition., 1. Edward Hastings Chamberlin (1899 -1967) was an American economist, f, Harvard University., 2. Joan Violet Robinson (1903 - 1983) was a British economist from, University of Cambridge.

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produce a product which is usually a close substitute for the, existing products. Entry of a new firm is not restricted through, monopolistic competition, as distinct from other forms of market, is, Economic literature, though uses these two terms - monopolistic, competition and imperfect competition - interchangeably, yet, more popular and has a larger acceptance., Momopolistic Competition, M-, 65, s fo, itie, itio, orie, 52 FEATURES OF MONOPOLISTIC, 930, COMPETITION, and, list, . H, tio1. Many Sellers : There are many sellers in a monopolistic, competitive market. A single seller is not big enough to, influence the market. Each one may to a certain extent follow, an independent policy in price and output matters without, disturbing others. There is no apparent interdependence, between the sellers, therefore it is possible for an individual, firm to pursue an independent course of action. The impact of, such actions is not seriously felt by the competitors., ES o, cture, as o, istic, duc, wer, 2 Close Substitutes: Products sold by the sellers in monopolistic, competition are close substitutes. Soaps and garments are, examples where there are many close substitutes for any given, brand of product. However they are not perfect substitutes as, in perfect competition. Being close substitutes the cross elasticity, of demand is high., n to, ned, ee ot, The, poly, vays, re to, 3. Selling Costs : Firms in a monopolistically competitive market, promote sales by incurring selling cost. Selling cost includes, all types of costs incurred to promote sales. It is usually incurred, in the form of advertisement- (T.V., broadcast, hoardings, press,, etc.) exhibitions, window advertising, gifts of some other, products alongwith the main products, free samples, etc., Additional discount offered to the retailers is another form of, selling cost. Such discounts are the incentives to the retailers to, promote that product. Selling cost tries to influence consumers', demand and promote sales., ents,, [oan, fect, the, the, ree Entry and Exit : A firm is free to enter the market i.e. to, from, the, SUvernment policies or through any other method. Similarly,

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there are no restrictions if a firm wants to leave the market fo, any reason. Excess profits by the existing firms will attract mon, industry or group. Free entry and exit will enable the remainin, 66, Business Economics- II (F.Y.B.Com.: SEM., M, Pr, (i), firms to the market and a loss will compel them to leave, firms earn only normal profit in the long-run., Nature of Demand Curve : Demand for products of each fin, 5., is downward sloping and comparatively more elastic. A, individual firm can sell more by reducing the price. Deman, for products sold by monopolistically competitive firm is elast, It is not perfectly elastic as in the case of perfect competitio, where commodities are perfect substitutes. Its elasticity is als, not very low like in monopoly where the product has no clos, substitutes. Readymade garments, soaps, toothpaste can be, cited as examples where we have many close substitutes making, the market monopolistically competitive. The demand curve, of a monopolistically competitive firm is shown in Fig. 5.1., Y4, D, Quantity Demanded, Fig. 5.1, Fig. 5.1 shows the nature of demand curve of a monopolisticall, competitive firm. Availability of large number of clos, substitutes makes the cross elasticity high and demand more, elastic., Product Differentiation: Products in monopolistic competitio, are differentiated. Being close substitutes it becomes essentie, to have an independent identity of its own. In products, pant lengths, shirt pieces, dress pieces, etc. there are ma, varieties. They are close substitutes and each brand of produ, differentiates itself from the other., 6., like, Price

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Product differentiation may take place in the form of:, name itself becomes a brand name for its product. Godrej, Brand Name : Products are known by their brand name. Over, customers. Brand or product loyalty gives a certain degree of, Product differentiation through the above methods helps the firms, the vears certain firms acquire goodwill in the market. Firm's, palistic Competition, 67, SEM-, ket for, ct more, ave the, aining, upboard, Phillips T.V. are some of the examples. Some, nducts get established in the market by the product name as, the case of Colgate Toothpaste, Parker Pen, Tata Tea. Brand, develop brand loyalty., h firm, ic. An, emand, elastic., etition, is also, o close, an be, aking, names, Size : Products are manufactured in different sizes. Economy,, family, large, extralarge are some of the sizes in which products, are available. Certain firms may specialise in a particular size, like family size or economy size. Thus, a firm will be known, for a product of a particular size., Design : Products could be differentiated on the basis of design., Refrigerators, Cupboard, Scooters, Motor-Cycles, Cars are some, of the products which are considered by the buyers on the basis, of design., curve, 1., (iv) Colour : Colour is one of the important factor on which goods, are differentiated. Textiles, readymade garments, plastic, products, Automobiles specially cars are preferred by the, customers on the basis of their colour., Taste and Perfume : Products like toothpaste, soaps, cosmetics, are selected on the basis of taste or perfume., ) Good Salesmanship : Customers may prefer the products of a, particular firm against its rival firms simply because good, salesmanship, positive attitude, approach, co-operation of the, sales people, good uniforms, good manners and so on., cally, lose, period during which free service is offered. Services are offered, tereafter on payment. Quality of after-sale-service influences, the customers while selecting products., noe ) After-Sale-Service : Consumer durable items have warranty, tion, htial, like, to, acquire, any, luct, a certain degree of loyalty to their products from their