Market structure or market morphology tells us how competitive forces are organized in an industry. At one extreme it is called perfect competition and that does not fall under perfect competition is called imperfect competition. The other extreme it …show more content…
It happens due to various resons like natural conditions in the market, patents, copyrights, government rules and regulations etc. As there is only one seller he can fix any price he wants. Any change in the supply by the producer will affect the market in a big way.
No close substitute: The commodity sold by the seller in a monopoly market has no close substitute to it. As there is no close substitute for the product, the demand for product sold by the seller is inelastic.
Price discrimination: Price discrimination means that the same product is sold at different price to different buyers. It is the sellers ability to estimate consumers paying capacity and willingness to pay so as to maximize benefits for the consumer, as well as revenue and profit maximization for the firm.
Supernormal profits in the long run: Being the one and only seller in the market the seller makes high profits.
Limited consumer choice: As there is no close substitute for the commodity the choice for the consumers is very less.
Types of …show more content…
As the entry to the market and exit from the market is easy there will be large number of firms in the market.
Product differentiation: The products offered by different producers are same but not identical. They are differentiated based on the quality, brand, design, packaging, features etc.
Free entry and exit: The firms have no restrictions of entry and exit to the market. Any firm can enter and exit the market as they want.
Firms are price makers : Each firm makes a unique product, it can charge higher or lower price than its rivals. The firm can set its own price and does not have to ‘take' it from the industry as a whole, but can consider the industry price as a guideline. This also means that the demand curve will slope downwards.
Graph of Monopolistic competition Under monopolistic competition both MR and AR curves are downward sloping. A sloping AR curve shows that to sell more units the price of the goods has to be reduced. The demand curve is also downward sloping. This shows that more buyers will buy a commodity when the price is reduced.
Examples of Monopolistic competition
Soap manufacturing companies
Hotels