Other
Monopolistic Competition market structure essay plan
- Module
- Principles Of Microeconomics
- Institution
- Loughborough University (LU)
Essay plan/structure for an essay on the topic of the monopolistic competition market structure
[Show more]
Seller
Follow
Content preview
Introduction:- What is Monopolistic Competition: There are many sellers that compete with each other to
sell their goods & services but each seller can influence the price they charge for their goods
and services hence the structure has similarity to both monopoly and perfect competition
- Market Structure:
1. Many Buyers, who are all informed of prices
2. Many small sellers: hence they do not respond to each other’s’ output choices as there
are lots of them in the market
3. Low Barriers to entry
4. Differentiated products
- Two forms of product differentiation
- Define Horizontal differentiation: quality is the same, but the best depends on tastes
- Define Vertical differentiation: different quality
Main Body:
- They have this ‘market power’ because: their products are differentiated, so they are
imperfect substitutes for each other hence a firm can set a high price without losing all of its
customers to low-priced rivals
- Assumptions of Monopolistic Competition:
1. Buyers are price taker:
2. Buyers and Sellers have complete info:
3. Sellers are price makers: Seller sells more at lower price (D curve is hence downward
sloping) and seller’s output choice doesn’t trigger a reaction in rivals; same as monopoly
4. Entry is free: A potential seller can enter the market in the long run without incurring
costs that an incumbent seller would not incur. Entry is a LR decision in which all factors
of production are variable; same as perfect competition
- Short run equilibrium in Monopolistic Competition:
- D curve (AR) is -ve sloped as
we’ve assumed the seller is a
price maker hence needs to
lower the price to sell more
- Increasing the number of
sellers affects the D curve as
more sellers means less
buyers to go round; hence
more sellers will shift AR to
the left as AR is a function of
n i.e. no. of firms
- Seller’s D curve is more
elastic than market D curve
as in the Seller’s case we are
holding other influences
constant when considering a
change in price however with market diagram a price change is a change for the whole
market
- Sellers Demand will have more close substitutes to go to in case of a price rise and hence the
D is more elastic
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller vibhavpandey. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for £2.99. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
72841 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy revision notes and other study material for 14 years now