Considering the types of goods and services you buy and use regularly, in your o
ID: 1214071 • Letter: C
Question
Considering the types of goods and services you buy and use regularly, in your opinion, what type of market structure do you encounter most frequently? I prefer to use some of the basic needs are foods & drinks, shampoo and soap, detergents and gasoline for cars.
Select ONE market structure, either Perfect Competition, Monopoly, Monopolistic Competition, or Oligopoly. Explain why you selected that market structure, and then provide four goods that fall into that market such as above. Please write down in essay format. Thanks
Explanation / Answer
Considering the types of goods and services we buy and use regularly , the market structure we encounter most frequently is MONOPOLISTIC COMPETITION.
The reason for selecting above market structure is the presence of the features of monopolistic competition type of market structure. Features of such market structure is:-
1. Large Number of Sellers:
There are large numbers of firms selling closely related, but not homogeneous products. Each firm acts independently and has a limited share of the market. So, an individual firm has limited control over the market price. Large number of firms leads to competition in the market.
2. Product Differentiation:
Each firm is in a position to exercise some degree of monopoly (in spite of large number of sellers) through product differentiation. Product differentiation refers to differentiating the products on the basis of brand, size, colour, shape, etc. To differentiate the products, firms sell their products with different brand names, like Lux, Dove, Lifebuoy, etc.The product of a firm is close, but not perfect substitute of other firm.
Implication of ‘Product differentiation’ is that buyers of a product differentiate between the same products produced by different firms. Therefore, they are also willing to pay different prices for the same product produced by different firms. This gives some monopoly power to an individual firm to influence market price of its product.
3. Selling costs:
Under monopolistic competition, products are differentiated and these differences are made known to the buyers through selling costs. Selling costs refer to the expenses incurred on marketing, sales promotion and advertisement of the product. Such costs are incurred to persuade the buyers to buy a particular brand of the product in preference to competitor’s brand. Due to this reason, selling costs constitute a substantial part of the total cost under monopolistic competition.
It must be noted that there are no selling costs in perfect competition as there is perfect knowledge among buyers and sellers. Similarly, under monopoly, selling costs are of small amount (only for informative purpose) as the firm does not face competition from any other firm.
4. Freedom of Entry and Exit:
Under monopolistic competition, firms are free to enter into or exit from the industry at any time they wish. It ensures that there are neither abnormal profits nor any abnormal losses to a firm in the long run. However, it must be noted that entry under monopolistic competition is not as easy and free as under perfect competition.
5. Lack of Perfect Knowledge:
Buyers and sellers do not have perfect knowledge about the market conditions. Selling costs create artificial superiority in the minds of the consumers and it becomes very difficult for a consumer to evaluate different products available in the market. As a result, a particular product (although highly priced) is preferred by the consumers even if other less priced products are of same quality.
6. Pricing Decision:
A firm under monopolistic competition is neither a price- taker nor a price-maker. However, by producing a unique product or establishing a particular reputation, each firm has partial control over the price. The extent of power to control price depends upon how strongly the buyers are attached to his brand.
7. Non-Price Competition:
In addition to price competition, non-price competition also exists under monopolistic competition. Non-Price Competition refers to competing with other firms by offering free gifts, making favourable credit terms, etc., without changing prices of their own products.
Firms under monopolistic competition compete in a number of ways to attract customers. They use both Price Competition (competing with other firms by reducing price of the product) and Non-Price Competition to promote their sales.
Four goods that fall into that market such as above are:-
(i) Toothpaste: Pepsodent, Colgate, Neem, Babool, etc.
(ii) Cycles: Atlas, Hero, Avon, Hercules etc.
(iii) Tea: Brooke Bond, Tata tea, Today tea, Reliance tea, Taj mahal tea, etc.
(iv) Soaps: Lux, Hamam, Lifebuoy, Pears, Cinthol etc.