What
is monopolistic competition?
The most common example
of monopolistic competition is the Restaurant Industry.
There are a lot of
restaurants everywhere, therefore we can conclude that in a monopolistic
competition, no are no barriers to entry,
therefore it is easy to enter and exit
the industry which results in many
buyers and sellers.
These are the two most
popular fast food restaurants around the world:
McDonald and Kentucky
Fried Chicken both offer burgers, fries, a variety of drinks, fried chicken,
dessert and etc.
Almost
the same, But NOT the same
These restaurants sell
differentiated products in the sense that they are close substitutes but not
perfect substitutes. They may vary by with prices, quality, taste, texture,
services, environment and etc.
McDonald and Kentucky
Fried Chicken are price makers. In order to stay in the industry, they cannot set
their prices too high nor too low. They must always monitor their competitors.
In this case, MCD and KFC must always monitor the prices set by each other.
$$$
are needed to Advertise
MCD and KFC need to
constantly compete with each other. Hence, a lot of advertising is needed to
ensure that customers are updated about their new products, breakfast/ lunch/
dinner discounts. But the cost for advertisement is never cheap and is needed
to be taken into consideration as their expenses.
Monopolistic
competition will either make profit or
losses in the short run, but in the long
run there will be normal profit.
Post by Victoria Loh
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