Marketing Research On Monopolistically Competitive Market

Monopolistically Competitive Markets
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August 6, 2017
In an ideal monopolistic market, it is a well-known fact that firms could “dictate” their own prices. This happens because these “price makers” offer services which are needed by many consumers, all on their own without any competition. This ability of firms to dictate their own prices is somehow also present in a monopolistically competitive market. In this structure competition is characterized by similar companies which are grouped together in a predefined place, where all or most of them have a similar market structure but are selling a slightly different product or services CITATION Econd \l 1033 (EconomicsOnline.com, n.d.). As stated above, the key difference between a monopolistic market (monopoly) and a monopolistic competition is that the first one has an “extreme difference” in terms of product differentiation, while the second one only has a “slight difference” in product (but could be similar in structure). This slight difference is one of the main reasons why in an MC the products of different firms are not exactly “direct substitutes”, and thus each one could dictate their own pricing with little effect on consumer demand. In other words, because of these differences in their services, products, and commodities, these companies have the power over their own pricing schemes despite competing for the same market.
In some cases, however, these different firms could then come to an agreement where their products would not be challenged by the other company or even serve as a complementary of the others’ products. This idea comes from the earlier stated fact that the firms or companies in this market structure are seen as “price makers”, where they could set the price with the goals of making the most profit. Thus, if other firms exist and are offering the similar product at a much lower price, then the tendency for the other firm is to lower their own in order to compete with the other one. However, if in any case that there are no other competitors setting their own prices, then these companies could set their own prices as high as possible, since in this market structure firms are viewed as “profit maximizers”, such as the case in a Monopolistic Competition (MC) (EconomicsOnline.com, n.d.).
In order to further elaborate on this subject, it is first important to understand how a monopolistic competition works. According to Investopedia.com (n.d.), a monopolistic competition is constituted of “many firms offer products or services that are similar, but not perfect substitutes”. This means that for ny given commodity, no competition could challenge the prices that tey make and if that commodity has a high demand, then its price i...