Monopolistic/Imperfect
competition as the name signifies is a blend of monopoly
and competition. It is a systematic and realistic theory of
price analysis in this imperfectly competitive world.
Monopolistic
competition is a market situation in which there are relatively
large number of small firms which produce or sell similar but
not identical commodities to the customers.
According to
Leftwitch:
"Monopolistic
competition is a market situation in which there are many
sellers of a particular product, but the product of each seller
is in some way differentiated in the minds of consumers from the
product of every other seller".
In the words of
J.S. Bain:
"Monopolistic
competition is found in the industry where there is a large
number of small sellers selling differentiated but close
substitute products".
Oligopoly:
In case the number of
firms is small and the action taken by one firm is followed by
rival firms in the market, it is then to be studied within a
separate framework of monopolistic competition called
Oligopoly.
According to
Chamberlin, if all the firms produce identical goods, they can
be easily categorized and called an industry.
In case, the number
of firms is fairly large say 20, 40, 60 and they produce some
what similar goods, it is then useful to group these firms
together and call them a 'product group' of
industry. We in this chapter, however, use 'product group' of
'industry' in the same sense to avoid complication.
Examples of Monopolistic Competition:
For example, a firm
supplies branded good 'Lux Soap' in the market. There are many
other firms in the market which sell similar soaps (not
identical) with different brand names like Rexona, Palm Rose,
etc., etc. The firm supplying 'Lux Soap' enjoys a monopoly
position over the sale of its own product. It also faces
competition from firms selling similar products.
Same is the case with
many other firms in the market like plywood manufacturing,
jewellery making, wood furniture, book stores, departmental
stores, repair services of all kinds, professional services of
doctors, technicians, etc., etc. These firms and others which
have an element of monopoly power and also face competition over
the sale of product or service in the market are called
monopolistically competitive firms.
