Core-016 Monopolistic Competition
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About Core-016 Monopolistic Competition
About the Teacher
Jay Moulton
Jay Moulton is a business veteran. In short:
- Corporate finance and turnaround expert in U.S. and Canada
- CEO or operator of numerous companies in many industries
- 30 years of actually applying business economics principles
- Successfully led and invested in several leveraged buyouts
- Director or advisor to 30+ different companies
- Experience in both for-profit and not-for-profit sectors
- Producer of 700 professional videos and several TV shows
- Author of six economics and business strategy books
- Graduate of Harvard Business School MBA program
- Graduate of The Royal Military College of Canada
- Professional electrical engineer
- Governor of the Harvard Club of British Columbia
Monopolistic Competition
MODULE 1
Monopolistic competition is one of the four market structures. In monopolistic competition, consumers perceive non-price differences between products. This gives firms some control over prices. There are many firms in the market and there are low barriers to entry and exit.
Introduction
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The video uses a fast food restaurant to illustrate how monopolistic competition works. This is a market structure in which firms that sell similar but differentiated products, need to advertise and offer innovative products to attract customers.
In monopolistic competition, we have many firms with similar products. Each firm advertises their products to highlight and differentiate them.
In monopolistic competition, firms have some control over price, each firm is interested in other firms' behavior, there are many firms in the market place, consumers perceive non-price differences in firms' products and there are few barriers to entry and exit.
Dynamics of Monopolistic Competition
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The video calculates the short-run profit of a firm in monopolistic competition.
The video illustrates a situation where new firms enter and expand the market so that the existing firms are helped rather than harmed.
In this restaurant example, we begin with Restaurant A that has 10 customers and is the only restaurant in the area. The restaurant market in this area has 10 total customers.
Equilibrium in Monopolistic Competition
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Positive economic profits by existing firms, incentivize new firms to enter. These new firms take profit away from the older ones. Losses incurred by existing firms result in firms going out of business. Theoretically, there are zero economic profits in the long run.
In the traditional model, as firms in a market make economic profits, there is strong incentive for new firms to enter the market to share in those profits.
Determining the optimum quantity and price in monopolistic competition.
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