MCS 1000 Chapter Notes - Chapter 14: Monopolistic Competition, Product Differentiation, Demand Curve

• School: University of Guelph
• Department: Marketing and Consumer Studies
• Course: MCS 1000
• Professor: Sergio Meza

Document Summary

Monopolistic competition is a market structure in which: a large number of firms compete, each firm produces a differentiated product, firms compete on product quality, price, and marketing, firms are free to enter and exit the industry. In monopolistic competition, each firm supplies a small part of the total industry output. Consequently, each firm has only limited power to influence the price of its product. Ea(cid:272)h fi(cid:396)(cid:373)"s p(cid:396)i(cid:272)e (cid:272)a(cid:374) deviate from the average price of other firms by only a relatively small amount. A firm in monopolistic competition must be sensitive to the average market price of the product, but the firm does not pay attention to any one individual competitor. Because all the firms are relatively small, no one firm can dictate market conditions, and so no o(cid:374)e fi(cid:396)(cid:373)"s a(cid:272)tio(cid:374)s di(cid:396)e(cid:272)tl(cid:455) affe(cid:272)t the a(cid:272)tio(cid:374)s of the othe(cid:396) fi(cid:396)(cid:373)s. Firms in monopolistic competition would like to be able to conspire to fix a higher price called collusion.