Monopolistic Competition

Ji Hyun, Sayaka, Johan, Avu, Oat

Nature of Monopolistic Competition

• High profile firms with high recognition brandso selling similar products

• Branding and advertisingo differentiated products as superior

unique aspects• attracted by supernormal profits

o supernormal profit: profit that exceeds the normal profit or return from the input factors

Assumptions

• Size and Number of Firmso relatively many

but some small• Barriers to Entry

o relatively low

• Consumer Sovereigntyohigh

Determining costs, revenues and profit

Price

Output

Short-run 

Determining costs, revenues and profit

Price

Output

Demand (AR)

Determining costs, revenues and profit

Price

Output

Demand (AR)

MR

Determining costs, revenues and profit

Price

Output

Demand (AR)

MR

MC

Determining costs, revenues and profit

Price

Output

Demand (AR)

MR

MC

AC

Determining costs, revenues and profit

Price

Output

Demand (AR)

MR

MC

AC

MC=MR

Q1

Determining costs, revenues and profit

Price

Output

Demand (AR)

MR

MC

AC

MC=MR

Q1

P1

C1

Determining costs, revenues and profit

Price

Output

Demand (AR)

MR

MC

AC

MC=MR

Q1

P1

C1

Determining costs, revenues and profit

Price

Output

Demand (AR)

MR

In the long-run

Determining costs, revenues and profit

Price

Output

Demand (AR)

MR

MCIn the long-run

Q2

Determining costs, revenues and profit

Price

Output

Demand (AR)

MR

MCIn the long-run

Q2

AC

P1, C1

Pros and Cons

• The best thing about monopolistic competition is product differentiation

• Unlike perfect competition, products aren't generic, they vary in style, taste etc.

• Unlike monopoly, there are multiple products for varying needs

• Therefore, both the producer and consumer have market sovereignty

• However, like a monopoly, there is some inefficiency, and there are not long term profits

Pros & Cons vs. Perfect Competition

• In the short run, monopolistic competition markets enjoy supernormal profits as MC = MR

• There is product differentiation, unlike in a perfect competition

• There is producer sovereignty, unlike in a perfect competition• However, firms not caring about each other causes lack of

efficiency in firms• Firms have extra capacity• Firms produce too little

Pros and Cons vs. Monopoly

• Product differentiation: Monopolies have a single "unique" product, while monopolistic competitions boast many different products

• Very few barriers to enter the market• Consumer sovereignty with ability to choose•  The single firm has absolute power•  Slightly better in the long term

Examples

• Soft drink companieso Coca-cola, Pepsi...

• Sports shoes companieso Adidas, Nike...

• petrol stations, restaurants, hairdressers and builders...

Advertising Techniques   

• Vending machineso Easy access to both students and faculties 

• Provide sport teams with uniforms • P.E. Uniforms• Sport events:

o Baseball: shoot out shirts to audienceo Basketball: shoot out competition, winner get a free tee

shirt• Use well-known teachers/students as models for our

products• Available in various styles/sizes

Styles

• Ji Hyun-IT • Ji Hyun-IT Baby• Ji Hyun-IT Formal• Ji Hyun-IT Active• Ji Hyun-IT Goth

Ji Hyun-IT

... Model : Mr. James LindopHistory / Geography Teacher

"I love Ji-Hyun IT!"

Ji Hyun-IT Baby

Model: Deepak ParwaniStudent / Ji-Hyun IT Lover

"Ji-hyun IT is the ____"

Ji Hyun-IT Formal

Ji Hyun-IT Active

Ji Hyun-ITGoth