Will Congleton

Bryan Ito
Hannah
Phillips

Monopolistic Competition

What is Monopolistic Competition?

Many firms
(e.g. fast food,
convienence
stores, clothing)

Some large
firms, some
small firms

No single firm
controls market

Monopolistic
Competition

Products are
differentiated
Consumers
buy based on
loyalty rather
than quality

No products
are perfect
substitutes
3

Large number of
firms

Monopolistic
Competition

Minimum average
cost unachieved

Higher costs than

free competition, but
greater diversity.
E.g. 100 yen for only
McDonalds, or 120
yen for McDonalds,
Wendys, or Burger
King.

Pros

Productive Inefficient
5

Productive
Efficiency

Price greater
than marginal
cost

Greater
diversity.
Price still
lower than
monopolistic
market.

Pros

Allocative Inefficient
6

Allocative
Efficiency

Figures

Short
Run

Long
Run

Examples
Petrol
Stations

Hair
Dressers

Family
Restaurants

Monopolistic
Competition
- Many Products
- Few Barriers to
Entry
- Forced Innovation
- No Market Control

Monopoly
- One product
- No chance of Entry
- No innovation
- Absolute Market
Control

Monopolistic
Competition
- Many Products
- Few Barriers to
Entry
- Forced Innovation
- No Market Control

10

Oligopoly
- Few products
- High Barriers of
Entry
- Little Innovation
- Large Market
Control