Group 3 Monopolistic Competition1

WARM-UP ACTIVITY
LEVEL 1
MARKET
ATRMKE
LEVEL 2
COMPTENIOTI
COMPETITION
LEVEL 3
TCPRODU
PRODUCT
LEVEL 4
It exists when many companies offer competing products or

services that are similar, but not perfect, substitutes. What
market structure is this?
A. Monopoly
B. Perfect competition
C. Monopolistic competition
D. Oligopoly
Monopolistic
Competition
ABM C - GROUP 3
OBJECTIVES:
• Know what monopolistic competition is and what

its advantages and disadvantages are.
• Determine the characteristics of monopolistic
competition.
• Give some examples of business under
monopolistic competition.
What is Monopolistic competition?
• Monopolistic competition occurs when many

companies offer products that are similar but not
identical.
• Firms in monopolistic competition differentiate
their products through pricing and marketing
strategies.
Characteristics of Monopolistic Competition
• Low Barriers to Entry

In monopolistic competition, one firm does not monopolize
the market and multiple companies can enter the market
and all can compete for a market share. Companies do not
need to consider how their decisions influence competitors
so each firm can operate without fear of raising
competition.
• Product Differentiation
Competing companies differentiate their similar products with
distinct marketing strategies, brand names, and different quality
levels.
• A Large number of sellers and buyers

There are a large number of buyers in the market. All buyers have
their unique preferences. These buyers are divided into selling
companies based on their preferences.
• Free entry and exit from the market

Free entry from an economic market means that a
business can begin selling a good or service and
experience few barriers to entry, while free exit
means that a company can leave a market relatively
freely if it experiences monetary losses.
• Heavy expenditure on Advertisement and other Selling Costs

Under the monopolistic competition, the firms incur a huge cost on
advertisements and other selling costs to promote the sale of their
products. Since the products are different and are close substitutes for
each other; the firms need to undertake the promotional activities to
capture a larger market share.
• Price-setters
Monopolistically competitive firms are price-setters in the sense thatthey
are able to set their prices by setting their output level.
Advantages
• Expansive Product Options

In this market structure, differentiation is essential. Firms
compete by differentiating themselves and their products
while appealing to the preferences of the entire target market
or segments of it. Customers benefit from this by having more
options. Some products are less expensive to appeal to budget-
conscious customers, whereas others have more features and
premium pricing to appeal to high-end customers.
Advantages
• Freedom in decision-making.
Firms in monopolistic competition don't take into consideration
how their decisions influence competitors. Therefore, each firm
can operate without fear of starting heightened competition.
• Differentiation brings greater consumer choice and variety

This provides greater choice and variety of products and
services forconsumers to purchase.
Disadvantages
•Higher advertising and marketing costs
Since firms in monopolistic competition sell differentiated products, they
often need to spend more on advertising and marketing to differentiate their
products and stand out in the market. These costs are passed on to
consumers in the form of higher prices.
•Increased price volatility

In a monopolistically competitive market, firms have more control over their
prices, which can lead to greater price volatility as they adjust their prices to
try to gain market share.
Disadvantages
• Potential for market failure

In some cases, monopolistic competition can lead to a
market failure. In a non-competitive market, firms may
have the potential to abuse their degree of monopoly
power, leading to higher prices, restrictions on supply, or
reduced product quality. This can lead to negative
consequences for both the consumers and the overall
economy.
Examples
CLOTHING
A situation where there are multiple
clothing brands available, but each
brand offers unique features, styles, and
designs that differentiate them from
each other, could be an example of
monopolistic competition in clothing.
For example, a store might stock t-shirts
from many manufacturers, including
Nike, Adidas, and Puma.
SUPER MARKET
Citimart and Waltermart operate
in a market structure known as
monopolistic competition, in
which multiple firms sell
products that are similar but not
identical, giving them some
market power to differentiate
themselves from one another.
Fast Food Company
The Fast Food companies like the
McDonald’s and Burger King which
sells burger in the market are the
most common type of example of
monopolistic competition. The two
companies mentioned above sell an
almost similar type of products but
are not the substitute of each other.
Restaurants
One can see that there are many
restaurants in any town and each one of
them competes on the quality of food and
prices of the product offered in the
market.
Soap Hotels
There are many soap brands, Each hotel company offers a
each with a slightly different similar service with slight
style and scent. It’s difficult to variations in pricing and
really tell the difference which quality levels.
is why some offer to ‘kill 99.9%
of bacteria’ and other slogans.
Let's test what you've learned!
THANK YOU!

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WARM-UP ACTIVITY

It exists when many companies offer competing products or

• Know what monopolistic competition is and what

• Monopolistic competition occurs when many

• Low Barriers to Entry

• A Large number of sellers and buyers

• Free entry and exit from the market

• Heavy expenditure on Advertisement and other Selling Costs

• Expansive Product Options

• Differentiation brings greater consumer choice and variety

•Increased price volatility

• Potential for market failure

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