MONOPOLISTIC

COMPETITION

INTRODUCTION TO MANAGERIAL
ECONOMICS

Managerial economics is the "application

of the economic concepts and economic
analysis to the problems of formulating
rational managerial decisions. It draws
heavily from quantitative techniques such
as regression analysis, correlation and
calculus.

INTRODUCTION TO
MONOPOLISTIC COMPETITION
The "founding father" of the theory of monopolistic
competition isEdward Hastings Chamberlin , who
wrote a pioneering book on the subject,Theory of
Monopolistic Competition(1933).
Joan Robinsonpublished a bookThe Economics of
Imperfect Competitionwith a comparable theme of
distinguishing perfect from imperfect competition.

Monopolistic competitionis a type of

imperfect competition such that many
producers sell products that aredifferentiated
from one another (e.g. by branding or quality)
and hence are not perfectsubstitutes.
In the presence of coercive government,
monopolistic competition will fall into
government-granted monopoly .
Models of monopolistic competition are often
used to model industries.

MEANING
Monopolistic competition is a competition
among monopolists.
It refers to a situation in which there are many
firms which produce differentiated products,
which are close substitutes for each other so that
the monopoly elements and those of competition
are in the same market situation.
Hence, there are competitive elements for each
firm has to compete with each other for
increasing its sales.

DEFINATION
Monopolistic competition can be defined as a
type of competition within an industry where:
1. All firms produce similar yet not perfectly
substitutable products.
2. All firms are able to enter the industry if the
profits are attractive.
3. All firms have some market power, which
means none are price takers .

EXAMPLES
Examples of industries with market
structures similar to monopolistic
competition includerestaurants,
cereal, clothing,shoes, and service
industries in large cities.

CHARACTERISTIC

Large Number of Sellers

Product Differentiation
Selling costs
Freedom of Entry and Exit

 Lack of Perfect Knowledge

Pricing Decision
Non-Price Competition

ADVANTAGES
Large number of sellers.
Product differentiation.
Close substitutes.
Selling cost.

Freedom of entry and exit.

Price maker.
Nature of demand curve.
Absence of firms
interdependence.
Existence of groups.

DISADVANTAGES
They Can be Wasteful -- Liable of Excess
Capacity
Higher Prices
Advertising
Resource allocation is inefficient under
monopoly.
Monopoly has lead to a tendency of price
discrimination

THANK
YOU