Bring out the salient features of a monopolistic competition market model
Combination of features from both perfect competition and monopoly; this compromise between monopoly and perfect competition takes the form of many firms producing differentiated and highly substitutable products – product differentiation could be in terms of packaging designs, colour, brand names, advertising claims, after sale service, all being competitive and highly persuasive. Examples of such market structures could be seen in the Edible oil industry where we have EAI producing Kimbo, Kapa Oil Refineries (Kasusku), Bidco (Chipsy)
- Freedom of entry and exit.
- Downward – sloping demand curve – denoting presence of competition.
- Possibility of supernormal profits in the short run.
- Normal profits in the long-run with excess capacity
- Wider scope of choice to the consumer through product differentiation; the highly competitive business environment allows for improvement in the quality of products at relatively lower prices.
Monopolistic competition is also wasteful in terms of excess capacity and increasingly high unit costs; variety for that matter may not necessarily conform to high quality especially where product composition cannot easily be verified either way of weakness on the part of the monitoring units such s the Kenya Bureau of Standards (KBS) and Kenya Consumer Organisation (KCO). It’s also wasteful in terms of differentiation which involves product duplication and resource misallocation.