Monopolistic competition in marketing


Market refers to any place where buyers and sellers meet and transactions take place. The meeting need not be physical. With modern communication, buyers and sellers may be miles apart yet can strike a transaction. There can be “online� purchasing and selling making any geographical limit irrelevant. Yet for convenience sake we have many markets situated at a particular locations. Broadly the essence of a market involves

I. Existence of Buyers and Sellers
II. Commodity of Service for Transaction
III. Meeting of Buyers and Sellers- physically or otherwise
IV. Knowledge of Market or Market information on the part of buyers and sellers
V. The act of Sale and Purchase.

Based on the number of Buyers and Sellers and by introducing the required assumptions we may classify a market according to the degree of competition. Thus the markets are categorized as 1. Perfect competition 2. Monopolistic competition 3. Oligopoly
4. Duopoly and 5. Monopoly.

These markets differ from one extreme to other. The difference is mainly based on number of sellers and nature of commodity.

So called a Perfect competition is a theoretical model which helps us understanding functioning of a business org under such conditions and also derive a certain set of principles which could be used as guidelines for the operation of a business firm even in a real Market situation.

Monopoly, in its pure form is also most uncommon. Yet in its loose form it does exist. In the real world, the market exihibits the characteristics of both competition and monopoly thus making the market monopolistically competitive. In this form of Market there are large number of Producers selling a commodity in which the producer has a monopoly market to a certain extent. But at the same time has to compete with rivals who produce a close substitute. For example, the textile firm like Bombay Dyeing may acquire a monopoly market for its products due to a brand loyalty developed by the consumers..
Hpwever such monopoly power cannot lead to complacency and relaxation on the part of this firm. Such an attitude may help the rivals to increase their market share . Therefore, though a firm has a certain degree of monopoly power yet at the same time it must be alert and compete with its rivals. Such a situation turns the market into monopolistic competition as described by Prof. Chamberlin and Prof. Joan Robinson , however described this situation as imperfect competition as the market doen not have the conditions required for Perfect competition.

Features of Monopolistic Competition :


The features mentioned above are self explanatory. A detailed discussion on the above is not within the scope of this article and will be dealt separately.