Skip to main content

Monopolistic Competition

The model of Monopolistic Competition describes a market structure where a large number of independent firms sell many similar products with slightly different characteristics.
Products are differentiated from each other by the means of design, distribution, quality, colour, packaging, customer service or branding etc. and hence they are not perfect substitutes of each other.
In Monopolistic Competition, a firm takes the price charged by its rivals as given and ignores the impact of it's own price on the prices of the other firms.
Mainly small businesses operate under the Monopolistic Competition, including independently owned and operated high street stores, restaurants, retailers etc. Each one offers similar products but possesses an element of uniqueness, and are essentially competing for the same customers.

Key Characteristics of a Monopolistic Competitive Market


Large Number of Participants

There are many producers / sellers and consumers in the market, and no business has total control over the market or the market price.

Law Barriers to Entry & Exit

There is freedom to enter or leave the market, as there are no major barriers to entry or exit.

Widespread Knowledge About the Products

Knowledge is widely spread between the market participants, but it is unlikely to be perfect. Customers choices may be influenced by the product differentiation, like packaging or other promotional features.

Individual Firm as Price Maker

Unlike Perfect Competition, in Monopolistic Competition each individual firms is Price Maker for it's own product, as there are no perfect substitute for that product. The market price may only acts as a guideline. Each firm produces unique products, and can charge a higher of lower price than it's rivals.

Freedom To Make Decisions

Each firm makes independent decisions about the terms of exchange of it's products or price or output of it's product, based on its costs of production and it's profit making appetite. The firm gives no consideration to, any effect it's decision will have on the competitors.

Increased Risk

The entrepreneur has a more significant role than in a perfectly competitive market, because of the increased risk associated with decision making.

Advertising / Branding

Firms operating under Monopolistic Competition usually have to engage in advertising, to let the customers know about their product's differences.

Product Differentiation

The central feature of the Monopolistic Competitive Market is that the products are differentiated. There are four main types of differentiation.
  • Physical Distribution, where firms use size, design, colour, shape, performance or features to make their products different.
  • Marketing Differentiation, where firms try to differentiate their products by distinctive packaging or other promotional techniques.
  • Differentiation through Distribution, firms try to differentiate via ease of deliveries, like through Online Shopping, Phone Order Bookings, Delivery at costumer door step, COD etc.
  • Human Capital Differentiation, where the firm creates differences through the skills of it's employees, through the customer support services that they provide. The level training given to the staff or distinctive uniforms etc.

Super Normal Profits in Short Run

In short run, firms can make excess economic profits or super normal profits. However because the barriers of entry are low, other firms has incentive to enter the market, increasing the competition, and driving down the prices, until all super normal profits are eroded away.

Innovation

As the product variety in the market increases with the entrance of new members, the product demand of the existing firms become more elastic, and starts depreciating, at this point the existing firms have reached their long run equilibrium. Firms benefit most when they are in their short run and hence try to remain in the short run by innovating and further product differentiation.

Popular posts from this blog

The Intuitive Lowest Cost Method

The Intuitive Lowest Cost Method Or The Minimum Cell Cost Method

The Intuitive Lowest Cost Method is a cost based approach to finding an initial solution to a transportation problem.
It makes allocations starting with the lowest shipping costs and moving in ascending order to satisfy the demands and supplies of all sources and destinations.

This straightforward approach uses the following steps.
Identify the cell with the lowest cost.Allocate as many units as possible to that cell without exceeding the supply or demand.Then cross out the row or column or both that is exhausted by the above assignment.Move on to the next lowest cost cell and allocate the remaining units.Repeat the above steps as long as all the demands and supplies are not satisfied. 
When we use the Intuitive Approach to the Bengal Plumbing problem, we obtain the solution as below.

Transportation Matrix for Bengal Plumbing From \ To Warehouse E Warehouse F Warehouse G Factory Capacity Plant A Rs.50
Rs.40 100 Rs.30 100 Plant…

Vogel's Approximation Method (VAM)

The Vogel's Approximation Method

In addition to the North West Corner and Intuitive Lowest Cost Methods for setting an initial solution to transportation problems, we can use another important technique - Vogel's Approximation Method (VAM).
Though VAM is not quite as simple as Northwest Corner approach, but it facilitates a very good initial solution, one that is often the optimal solution.
Vogel's Approximation Method tackles the problem of finding a good initial solution by taking into account the costs associated with each alternative route, which is something that Northwest Corner Rule did not do.

To apply VAM, we must first compute for each row and column the penalty faced if the second best route is selected instead of the least cost route.

To illustrate the same, we will look at the Bengal Plumbing transportation problem.

Transportation Matrix for Bengal Plumbing From \ To Warehouse E Warehouse F Warehouse G Factory Capacity Plant A
Rs.50
Rs.40
Rs.30 100 Plant B
Rs.80
Rs.

Gate Valve

A Gate Valve is also know as Sluice Valve, is a valve that opens by lifting a round or rectangular gate/ wedge out of the path of the fluid.

Gate valves are primarily designed to start or stop flow, and when a straight-line flow of fluid and minimum flow restriction are needed. In service, these valves generally are either fully open or fully closed.
Construction of a Gate ValveGate valves consists of three main parts: body, bonnet, and trim. The body is generally connected to other equipment by means of flanged, screwed or welded connections. The bonnet, which containing the moving parts, is attached to the body, usually with bolts, to permit maintenance. The valve trim consists of the stem, the gate, the disc or wedge and the seat rings.


Discs of Gate Valve
Gate valves are available with different disks or wedges.
The most common types of Discs are :
Solid Wedges Solid wedge is the most commonly used disk by its simplicity and strength. A valve with this type of wedge can be installed in e…