ECN 104 Chapter Notes - Chapter 15: Monopolistic Competition, Product Differentiation, Perfect Competition
22 Nov 2016
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Monopolistic competition is a market structure where: There are many competing producers in an industry. There is free entry and exit into the industry in the long run. Monopolistic competition comes from many small businesses. Corner convenience stores, flower shops, dry cleaners, any neighbourhood businesses run by people not involved in a large franchise. Product differentiation plays an important role in a monopolistically competitive industries. This is the only way monopolistically competitive firms can get some power in the market. There are three important forms of product differentiation: Differentiation by style/ type: ex: different models of cars (sudan vs. suv) Differentiation by location: ex: dry cleaner close to your home, vs. a cheaper dry cleaner which is a bit further. Differentiation by quality: ordinary chocolate, which is cheap vs. gourmet chocolate which costs a bit more. Whichever form product differentiation takes, there are two important features of industries with differentiated products. Competition amongst sellers: producers compete for the sale.
