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    Monopolistic competition

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    Why are some markets monopolistic?

    Are there natural monopolies?

    © BrainMass Inc. brainmass.com October 7, 2022, 7:04 pm ad1c9bdddf

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    1.Why are some markets monopolistic?


    Monopolistic competition is a modern form of the market structure. Monopolistic Competition lies between extremes: Perfect Competition and Monopoly.
    Some markets are monopolistic because of the following reasons:

    (1) A distinguishing structural characteristic of monopolistic competition is that there are "many" firms in the industry." Many" is somewhere between the "few" of oligopolies or the "hordes" that characterize perfect competition.

    (2) Monopolistic competition is a market in which many firms produce similar goods or services but each maintains some independent control of its own price.

    (3) Each producer in monopolistic competition is large enough to have some market power.( Market Power is nothing but the ability to alter the market price of a good or service.)

    (4) Modest changes in the output or price of any single firm will have no perceptible influence on the sales of any other firm. The relative independence of monopolist competitors means that they don't have to worry about retaliatory responses to every price or output change.

    (5) One of the most notable features of monopolistically competitive behavior is product differentiation. Product differentiation implies the features that make one product appear different from competing products in the same market.

    (6) Each firm has a distinct identity - a brand image. Consumers perceive its output to be somewhat different than others in the industry.

    (7) By differentiating their products, monopolistic competitors establish brand loyalty. Brand loyalty gives producers greater control over the price of ...

    Solution Summary

    Monopolistic competition is defined.