Talk:Monopolistic competition

From Wikipedia, the free encyclopedia

	This article is within the scope of the Economics WikiProject, an effort to create, expand, organize, and improve economics-related articles..
Start	rated as start-Class on the assessment scale
Mid	rated as mid-importance on the importance scale

[edit] Are these really examples

...of monopolistic competition?

"including the markets for restaurants, books, clothing, films and service industries in large cities." I believe it would me much better using the examples of 'Taxi Firms, Foreign Cuisine(i.e Chinese, Indian)'. I think it would be an extremely sensible assumption if we said That some of the markets mentioned were actually oligopolistic and do hold some barriers to entry. E.g It is incresingly hard to enter the clothing market and compete with such market shares of the big clothes chains. Lukeitfc 18:21, 4 October 2006 (UTC)Lukeitfc

"Hard to enter" is not the same thing as "barrier to entry." For example, facing competitors with well-established brand names is not a barrier to entry. Facing competitors who hire thugs to intimidate potential competitors is. Wikiant 18:36, 4 October 2006 (UTC)

I believe that this demonstrates the fact that these markets do not have freedom of entry and exit though. And I personally don't believe that they demonstrate monopolistic competition very well.Lukeitfc 15:46, 5 October 2006 (UTC)Lukeitfc

I'm not following your argument. If you're looking for examples of monopolistically competitive industries, select any industry in which brand name plays a prominent role. Wikiant 21:34, 5 October 2006 (UTC)

Monopolistic competition isn't where brand names play a prominent role though, it's very similar to perfect competition, but with product differentiation.Lukeitfc 19:18, 6 October 2006 (UTC)

Reliance on brand names is an indicator of monopolistic competition. There is no point in the firm differentiating its product if it cannot then direct consumers to its product (versus its competitors' products). Hence, if firms spend money developing brand names, it is likely that the industry is monopolistically competitive. You are correct that the difference between perfect competition and monopolistic competition is differentiation. However, because differentiation need not be "objective" but merely "perceived," it becomes difficult to identify what industries do and do not have differentiated brands. Because it is easy to observe which industries spend significant energy developing brand names, the prevelance of brand names ends up being a better ex post indicator of monopolistic competition. Wikiant 20:03, 6 October 2006 (UTC)

Yes, but I still think that to the 'lay-perso' there are much better examples of monopolistic competition. Lukeitfc 10:55, 15 October 2006 (UTC)

The statement "This is refuted by defenders of advertising who argue that (1) brand names can represent a guarantee of quality, and (2) advertising helps reduce the cost to consumers of weighing the tradeoffs of numerous competing brands." feels peculiar, specifically part 2, which seems to justify itself by stating that consumers are better off not choosing the best product, which is circularly false as consumers weighing the tradeoffs is a key driver to market evolution and cost reductions. Nedruod 04:08, 16 November 2006 (UTC)

[edit] Profits on Long run Equilibrium

On the long run equilibrium profits tend to be more than zero, because competition among profit maximizing companies with demand curves of imperfect elasticity will not bring the average cost to equal average revenue since, obviously, this is not profit maximizing. And if profits were zero, then it would not be inefficient because its level of output will equal output in perfect competition since both situations are similar in the model, the only difference is on the elasticity of supply and demand.--201.21.231.165 00:07, 23 August 2007 (UTC)

In the long-run, however, whatever distinguishing characteristic that enables one firm to reap monopoly profits will be duplicated by competing firms. This competition will drive the price of the product down and, in the long-run, the monopolistically competitive firm will make zero economic profit (i.e. a rate of return equal to the rate required to compensate debt and equity holders for the risk of investing in the firm).

Unlike in perfect competition, the monopolistically competitive firm does not produce at the lowest attainable average total cost. Instead, the firm produces at an inefficient output level, reaping more in additional revenue than it incurs in additional cost versus the efficient output level.

These two paragraphs seem to contradict each other. The first suggests that the long run result would be the production of goods with equilvalent features by different firms, ie the introduction of perfect substitutes. In that case, wouldn't we expect pricing at LRMC since the firms producing perfect substitutes should be competing solely on price, so we get perfectly elastic firm demand curves - raise your price and all your business goes to the other firm. The later paragraph seems to describe a different scenario where no perfect substitutes emerge, so the demand curves maintain some inelasticity.

--MattXIV (talk) 17:24, 1 May 2008 (UTC)

[edit] Graphs need legends

I can make some guesses as to what they're supposed to mean, but I don't have the same textbook sitting in front of me that whoever put those there does. At a minimum, an explaination of what every one of those abbreviations is would be nice. —Preceding unsigned comment added by Andy Christ (talk • contribs) 23:22, 9 April 2008 (UTC)