Economic science uses four basicmodels for the study of market situations. These models are pure competition, pure monopoly, monopolistic competition and oligopoly. It should be noted that the first two situations are ideal, that is, when considering them, one has to abstract from some circumstances inherent in real markets. Monopolistic competition more truly reflects the reality, therefore, its study is more appropriate. We'll talk about it in this article.
Monopolistic competition is a situation in whichmarket, under which the following conditions are met: there are many sellers and buyers, a differentiated product is sold (that is, the products offered are similar but have distinctive features), there are insignificant barriers to entry to the market, and sellers do not have the opportunity to act together. Unlike the ideal model of pure competition (in which an infinitely large number of sellers and buyers operate, there are no market barriers and the product is absolutely homogeneous), the model of monopolistic competition more realistically reflects the situation that develops in most cases, especially if we are talking about a group of FMCG goods - consumer.
Understanding this model will best come by examining the example. Let's try to prove that monopolistic competition exists on the market of household chemicals. Take detergents.
So, there is a large numbermanufacturers of this product both domestic and foreign. Trademarks, under which the washing powder is sold, there is even more. At the same time, each manufacturer tries to give its product some characteristic features (aroma, the presence of special additives, packs of different sizes, and so on) - differentiation is observed. In order to enter the detergent market as a producer, it is necessary to make expenditures for the acquisition of equipment, hiring of personnel and obtaining permits, if an entrepreneur wants to act only as a sales intermediary, he only needs to issue the necessary papers, hire employees and organize a place sale.
Thus, high barriers to entry intothere is no market, because there is no need to receive special licenses, permits and other securities that would be necessary, for example, to produce weapons. In addition, due to the fact that there are quite a lot of sellers on the market, they do not have the opportunity to unite in any way and establish a joint pricing policy - thanks to this, price becomes the most important tool of competitive game and gives the opportunity to lure consumers when it decreases. If this market were oligopolistic, then all sellers could collude and set unjustifiably high prices, which consumers would have to agree to because they simply would not have any alternative.
Monopolistic competition is morean effective market model for buyers, while the oligopoly is more beneficial to sellers, although it has its own pricing peculiarities - if sellers are not in collusion, they will be forced to closely monitor each other's actions and react to changes in the price policy of competitors . In economic terminology, a chain of such reactions is called a game consisting of separate moves.
Among all the models it is monopolisticCompetition is most often found in the consumer goods market of our country and others. We hope that this article has helped our readers understand the features of the structure and functioning of the market for monopolistic competition.