MONOPOLISTIC COMPETITION Meaning and
Definition
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Monopolistic competition is a type of market structure characterized by a large number of sellers who offer differentiated products to consumers. In this form of competition, each seller has some degree of market power as they possess a certain level of control over the prices they charge for their goods or services.
Unlike perfect competition, where products are homogeneous, monopolistic competition allows sellers to differentiate their offerings through factors such as quality, design, branding, and marketing. This differentiation creates a perceived value among consumers, allowing sellers to charge higher prices and potentially earn higher profits. However, there are still substitutes available in the market, as consumers can choose from a range of similar products offered by different sellers.
Monopolistic competition creates a competitive environment where firms continuously strive to differentiate their products in order to capture a larger market share. This often leads to extensive advertising and marketing efforts to create brand loyalty and attract consumers. As a result, sellers invest in research and development to innovate and improve their products, creating diversity and variety in the market.
Due to the presence of differentiated products and some level of market power, monopolistic competition can result in both benefits and drawbacks. On one hand, it encourages product innovation and offers consumers a wider range of choices. However, it can also lead to excessive advertising costs and higher prices for consumers. Overall, monopolistic competition strikes a balance between competition and differentiation, providing a dynamic and heterogeneous market structure.
Etymology of MONOPOLISTIC COMPETITION
The term "monopolistic competition" is composed of two parts: "monopolistic" and "competition".
The word "monopolistic" derives from the word "monopoly". "Monopoly" originates from the Greek words "monos", meaning 'single,' and "polein", meaning 'to sell.'
The word "competition" comes from the Latin word "competitio", derived from "competere", where "com-" means 'together' and "petere" means 'to seek.'
Therefore, "monopolistic competition" refers to a market situation where multiple firms compete with each other while possessing some degree of monopolistic power or differentiation in their products or services.
