Effectiveness of Monopolistic Competition and Oligopolies

In: Business and Management

Evaluate the effectiveness of monopolistic competition and oligopolies in meeting the needs of producers and consumers.

A market is a place where buyers and sellers meet to exchange money for goods and services. There are four market structures; perfect competition, monopolistic competition, oligopoly and monopoly. Each structure of market operates in their own ways with each with their own characteristics; each structure has its own number and size of the firms, the level of the competition, product differentiation and difficulty of entering new firms into the market. The two similar structures are monopolistic competition and oligopolies; although they are similar they still operate quite different to each other.

Monopolistic competition is defined as the structure with many small firms selling products of similar kind, therefore lots of choice and lots of range which means that there are lots of substitutes. Due to the fact that there are lots of substitutes price plays an important role; if a firm has established some sort of brand name or store name it will be able to charge a slightly increased price, but yet a very high increase in price will result in decrease of its market share. As firms have a very limited control on price to gain more consumers firms are involved in strong non-price competition of quality, advertising, packaging, promoting brand names, etc… To enter into a monopolistic market is relatively easy as there is no established market. Examples of this market structure include restaurants, hotels, clothing, shoes, bakeries, etc…

Consumers of monopolistic competition gain very low prices because of the increased competition between producers who use price and non-price methods to gain more customers; producers have little control over price. Producers have to have a very good standard of quality as there is lots of competition so...

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