Monopolistic competition is a market-form which possesses the characteristics of both perfect competition and monopoly. It is characterized by a large number of sellers and buyers like perfect competition. Entry is also free in such a market. But the goods sold by the firms are not homogeneous like that of perfect competition. The products are differentiated and this differentiation creates uniqueness for the product that gives it some amount of market power as enjoyed by a monopolist . The monopolistically competitive firm faces a downward sloping demand curve as in case of monopoly and not a perfectly elastic demand curve like a competitive firm. In real world we can find quite a large number of examples of monopolistic competition. Let us discuss one of them.
Presently we can see that the market for cars has become competitive. With a large number of brands from different countries flowing into the market there are a large number of sellers for cars. Different brands offer different kinds of features and other facilities. The consumers have a wide array of product to choose from and each product has its own characteristics quite different from others. Advertisement or other product promotion strategies are also a part of this market suggesting its monopolistic competition structure.
The car market has a number of players like the Chevrolet, Fiat, Volkswagen, Honda, Hyundai, Porsche, Audi, General Motors, Land Rover, Mercedes, to name a few. There are several categories like sports utility vehicles, small family cars or luxury cars. Each brand offers an array of features in terms of their looks, convenience, fuel economy, space, ease of driving with high tech facilities, after sales service offers and so on. The car manufacturers use a number of marketing strategies to attract customers like advertisement, test drive offers and so on. Product promotion and innovation are also regular features of this market.
Works Cited
Pindyck, Robert and Daniel Rubinfield. Microeconomics. 7th. Prentice Hall, 2009. English.
