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Difference of Monopolistic Competition from Monopoly with Oligopoly

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I had taken two introductory economics courses prior taking the ECON 310 course this semester, and I had learned a lot about the different markets including monopoly, oligopoly and monopolistic competitive markets. However, I always had trouble understanding the difference between them and it has always been very confusing to me until I got the opportunity to further learn them in this course. So, I decided to explore it in more details in this essay. In a monopolistic competitive market, there is no perfect information as in a perfectly competitive market. In this business environment, consumers can be deceived by perceiving that the products are different when in fact they can be interchangeable with their counterparts. Like oligopolies, they also depend heavily on marketing strategies to achieve product differentiation but differ by having unlimited competition that is not favored by entry barriers, as in the perfectly competitive market. Monopolistic competitive features, therefore, generally include differentiated products, large numbers of vendors and no entry restrictions.

In this environment, there is a great variability of the product, which justifies the millions of shampoo bottles in a hallway. Stunned by the number of bottles, the question comes to one’s mind is that weather there can be only one predetermined shampoo. Well, thanks to the monopolistic competitive companies like Aveeno, Garnier, Neutrogena, Pantene and the all too many to list, for trying to convince the consumers like us that their shampoo provides ‘silkier’ hair. Whether it is true or not, it does not necessarily matter as long as the consumer believes that it is true. Take conventional toothbrushes that like shampoo, they all have the same purpose. However, if a supplier of a 'one-of-a-kind' toothbrush with a softer handle believes that the feature is worth more and the consumer agrees, then the toothbrush will be sold at a higher price. A softer handle will not provide whiter or cleaner teeth, but it will help the variability of the product that gives the consumer a wide variety of options.

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Unlike oligopoly, monopolistic competitive companies must worry about competing with unlimited competition. Competition can be so extensive that it can be across the road or even neighbors. So why can companies decide to compete so closely when operating in less competitive places? The answer lies in the economist concept of spatial interpretation, that is, the company competes with consumers in the form of convenience by attracting more consumers by establishing more physical stores. If there is a total number of potential consumers within a certain range, companies will compete in an accessible environment. This explains the establishment of a gas station on the way to San Francisco. The gas station wants to compete for space and customers within the same exit because it does not want to create any distance from the convenience of competitors. If Chevron is to be pumped at a convenient exit, drivers trying to reach San Francisco will not want to drive more than a mile away to pump Arco gasoline.

Usually, there are a large number of independent companies competing in the market. The most common examples of monopolistic competition are fast-food burger companies such as McDonald's and Burger King. Both companies are selling similar products, but it depends on their favorite consumers. They sell burgers or any kind of food, such as fried chicken, french fries and soda. There are similarities, but no consistency. Another characteristic that distinguishes a monopolistic competitive market is that, unlike a perfectly competitive market, there is no barrier to entry for monopolistic competition. There can be ten food trucks on a street, and no one limits entering another one into the market. As long as revenue can be recognized, profits can be shared. The same cannot be said for pure monopolists and oligarchs, who lobby and indirectly prevent competitors from entering.

Monopolistic competition has a large number of sellers, but each seller acts independently and has no influence on others. Just like sellers, there are a large number of product buyers in the market, and each buyer acts independently. Monopoly competitors try to differentiate their products so that consumers cannot make alternative efforts. In this model, each company will have a product similar to its competitors, but it is not a perfect substitute. Only small differences between them allow competition. A monopolistic competitive market is essentially a mashup between an oligopoly and a perfectly competitive market.

References

  1. Monopolistic Competition. (2016, Oct 13). Retrieved from https://studymoose.com/monopolistic-competition-essay
  2. Pettinger, Tejvan, and Reagan Ottawa. “Tejvan Pettinger”. Economics Help, 29 Oct. 2019, https://www.economicshelp.org/blog/311/markets/monopolistic-competition/.
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Difference of Monopolistic Competition from Monopoly with Oligopoly. (2022, October 28). Edubirdie. Retrieved March 28, 2024, from https://edubirdie.com/examples/difference-of-monopolistic-competition-from-monopoly-with-oligopoly/
“Difference of Monopolistic Competition from Monopoly with Oligopoly.” Edubirdie, 28 Oct. 2022, edubirdie.com/examples/difference-of-monopolistic-competition-from-monopoly-with-oligopoly/
Difference of Monopolistic Competition from Monopoly with Oligopoly. [online]. Available at: <https://edubirdie.com/examples/difference-of-monopolistic-competition-from-monopoly-with-oligopoly/> [Accessed 28 Mar. 2024].
Difference of Monopolistic Competition from Monopoly with Oligopoly [Internet]. Edubirdie. 2022 Oct 28 [cited 2024 Mar 28]. Available from: https://edubirdie.com/examples/difference-of-monopolistic-competition-from-monopoly-with-oligopoly/
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