Monopolistic Competition

and Oligopoly
Prepared by:
Grade 12 – ABM B
 Group #2

Leader:
Pangilinan, Shaira C.

Members:

Carpio, Rhendy M.
Castro, Izza Adriana H.
Lugtu, Beia Kathleen P.
Ronquillo, Niaca Gian N.
Yumul, Julie Anne O.
Capinpin, Bin Jess Christian A.
Dado, Julli T.
Galang, Rommel L.
Manabat, John Michael T.
Melo, Arvin M.
Santos, Jerome G.
Monopolistic Competition
Definition

A market in which there are many sellers, each selling a

differentiated product, with unrestricted or low-cost long-
run entry and exit of resources.

Key characteristics
• Many buyers and sellers (same as perfect competition)
• Product differentiation
• Unrestricted entry and exit (same as perfect competition)
Characteristics of Monopolistic Competition

• Each firm makes independent decisions about price and output, based on its
product, its market, and its costs of production.

• Knowledge is widely spread between participants, but it is unlikely to be

perfect.

• The entrepreneur has a more significant role than in firms that are perfectly
competitive because of the increased risks associated with decision making.

• There is freedom to enter or leave the market, as there are no major barriers
to entry or exit.

• Firms operating under monopolistic competition usually have to engage in

advertising.

• A central feature of monopolistic competition is that products are

differentiated. There are four main types of differentiation:
• Physical product differentiation, where firms use size, design,
color, shape, performance, and features to make their
products different.

• Marketing differentiation, where firms try to differentiate their

product by distinctive packaging and other promotional
techniques.

• Human capital differentiation, where the firm creates

differences through the skill of its employees, the level of
training received, distinctive uniforms, and so on.

• Differentiation through distribution, including distribution via

mail order or through internet shopping, such as Amazon.com,
which differentiates itself from traditional bookstores by selling
online.
Examples of Monopolistic
Competition

• The restaurant business

• Hotels
• Consumer services, such as
hairdressing
• Clothing
• Shoes
The advantages of monopolistic competition
Monopolistic competition can bring the following advantages:

1.There are no significant barriers to entry; therefore markets are

relatively contestable.
2.Differentiation creates diversity, choice and utility. For example, a typical high
street in any town will have a number of different restaurants from which to
choose.
3.The market is more efficient than monopoly but less efficient than perfect
competition - less allocatively and less productively efficient. However, they may
be dynamically efficient, innovative in terms of new production processes or new
products. For example, retailers often constantly have to develop new ways to
attract and retain local custom.
The disadvantages of monopolistic competition

There are several potential disadvantages associated with

monopolistic competition, including:

1.Some differentiation does not create utility but generates

unnecessary waste, such as excess packaging. Advertising may
also be considered wasteful, though most is informative rather
than persuasive.
2.As the diagram illustrates, assuming profit maximisation, there
is allocative inefficiency in both the long and short run. This is
because price is above marginal cost in both cases. In the long
run the firm is less allocatively inefficient, but it is still inefficient.
Oligopoly
Definition

A small number of suppliers in a market with

substantial barriers to entry by potential
competitors.
Example of Oligopoly

• Beverages (soft drinks)

• Tobacco
• Automobiles
• Steel Industries or Hardwares
An oligopoly is a form of market where only a small group of companies
or suppliers control all of the market. This is different than a monopoly,
which is where only one company or business control the entire market.

The Advantages of an Oligopoly

1. High Profits
Since there is such little competition, the companies that are involved
in the market have the potential to bring a large amount of profits. The
services and goods that are controlled through oligopolies are
generally highly needed or wanted by the large majority of the
population.

2. Simple Choices
Having only a few companies that offer the goods or service that you are
looking for makes it easy to compare between them and choose the best
option for you. In other markets it can be difficult to thoroughly look at all
of the competitors to compare pricing and services offered.
3. Competitive Prices
Being. able to easily compare prices forces these companies
to keep their prices in competition with the other companies
involved in the market. This is a great benefit for the consumers
because prices continually go lower as other companies lower
there prices.

4. Better Information and Goods

Right along with price competition, product competition plays
a huge part in a the oligopoly market structure. Each
company scrambles to come out with latest and greatest
thing in order to sway consumers to go with their company
over a different one. This also goes with the advertising and
amount of information and support that they provide their
customers.
The Disadvantages of Oligopoly

1. Difficult To Forge A Spot

For small business and other people with creative ideas in a
oligopoly market, the outlook for their business is grim. Extremely
large and advanced companies completely control the market,
making it nearly impossible for small or new businesses to break into
the market place.

2. Less Choices
In many cases having to choose a company in an oligopoly is like
choosing the lesser evil. The consumers have very limited choices and
options for the services that they want. This is one of the biggest
pitfalls of a oligopoly.
3. Fixed Prices Are Bad For Consumers
While competitive prices come into play, they are rarely very
far apart from any other company that they could go with. This
is because the businesses and corporations that are part of the
market agree to fix prices. Meaning there is a set limit for just
how low prices can go, forcing consumers to pay high prices
no matter what.

4. No Fear Of Competition
Often times the companies that are in the oligopoly market
become very settled with their business. The profits and the
way they run are guaranteed to work, so they no longer feel
the need to come up with creative or innovate new ideas.
STARBUCKS COFFEE

Monopolistic Competition
LAXA HARDWARE

Oligopoly
NIKE

Monopolistic Competition
JOLIBEE

Monopolistic Competition
That ends the presentation,
Thank you for listening! 