Managerial Economics For Dummies

Chapter 13

Monopolistic Competition: Competitors, Competitors Everywhere

In This Chapter

Understanding the impact of competition

Setting price with many rivals

Disappearing profit in the long run

Advertising ideals

Mothers often say, “Just worry about yourself.” Well, that’s a great attitude to have in monopolistic competition — just worry about yourself. Indeed, in monopolistic competition, that’s all you can do. Monopolistically competitive markets have a large number of firms producing similar, but not identical, products. Thus, the products are differentiated, although their use is almost identical. Because there are so many firms, you can’t pay attention to all of them, so you need to focus on your own actions. This situation is very different from oligopoly (see Chapter 11) where you have to pay attention to rivals.

One of monopolistic competition’s most important characteristics is that firms produce slightly different products. Because of these product differences, each monopolistically competitive firm sets price. But any profit that results from the price you set can’t ...