Monopolistic competition   Perfect competition   Oligopoly   Monopoly Market structures and efficiency    Different types market power

Copyright © All rights reserved. Site administered by CPAP and content provided by Romeo Salla    


 Course notes quick navigation

1 Introductory concepts 2  Market mechanism  3 Elasticities  4 Market structures 5  Market failures  6  Macro economic activity/eco growth  7 Inflation 8  Employment & unemployment  9  External Stability  10  Income distribution 11.Factors affecting economy  12  Fiscal/Budgetary policy  13  Monetary Policy   14 Aggregate Supply Policies  15 The Policy Mix

Monopolistic competition

Monopolistic competition is a market structure that is very similar to perfect competition in that there are many buyers and sellers, there is freedom of entry and exit and there is perfect information.  The difference is the lack of product homogeneity, which means that products in these markets are not identical.  To illustrate, products like gas, electricity, petrol are arguably homogenous.  However, products like fast food or hairdressing services are typically differentiated to varying degrees. A consumer purchasing gas will generally be less influenced by branding, advertising or image and more influenced by price.  However, a consumer in the market for a haircut or fast food will be influenced relatively more by branding, advertising and image. This is because products for sale in these monopolistically competitive markets are not the same and consumers will be basing their purchasing decision on more than just the price of the product.

There are also still a large number of hairdressers, and relative ease of entry into and exit from the market. Accordingly, businesses in these markets make concerted efforts to effectively differentiate their products, and competition commonly occurs via ‘non-price’ factors, such as advertising, product positioning and location.  These businesses will therefore have a greater degree of market power than those businesses operating in a more perfectly competitive market because they are able to justify or ‘get away with’ charging a higher price for their product.  

Next page Previous page Test yourself