Types of market structures: perfect competition, monopolistic competition, oligopoly and monopoly. Summary: What is monopolistic competition

2. Characteristics of the market of monopolistic competition.

A type of imperfect competition market is monopolistic competition. It is characterized by features of both monopoly and perfect competition.

The market of monopolistic competition consists of many buyers and sellers who transact not at a single market price, but over a wide range of prices. The presence of a price range is explained by the ability of sellers to offer buyers different variants goods. Real products may differ from each other in quality, properties, external design. Differences may also lie in the services associated with the goods. Buyers see the difference in offers and are willing to pay for goods in different ways. To stand out beyond price, sellers seek to develop different offerings for different customer segments and make extensive use of branding, advertising, and personal selling techniques. Due to the presence of a large number of competitors, their marketing strategies have less influence on each individual firm than in an oligopolistic market.

Monopolistic competition does not require hundreds or thousands of firms, but rather a relatively small number, such as 25, 35, 60 or 70 in each industry. Several important features of monopolistic competition follow from the presence of such a number of firms:

1. Small market share. Each firm has a relatively small share of the total market and therefore has very limited control over market prices.

2. The impossibility of collusion. The presence of a relatively large number of firms ensures that collusion, concerted action to limit output and artificially raise prices is almost impossible.

3. Independence of action. When there are many firms in an industry. There is no rigid mutual dependence between them; each firm determines its policy, not taking into account the possible reaction from competitors.

In contrast to perfect competition, one of the main features of monopolistic competition is product differentiation. In conditions of monopolistic competition, firms produce products that are slightly different from competitors' products in terms of characteristic external attributes (features) of the product, quality of services, location and availability of goods, or other characteristics.

Entering an industry with monopolistic competition is relatively easy. That producers in such industries are typically small firms in both absolute and relative terms suggests little economies of scale and little capital. However, in contrast to the conditions of perfect competition, in this case there may be additional financial barriers generated by the need to obtain a product that differs from the product of competitors, and the obligation to advertise this product. In addition, incumbent firms may own product patents and copyrights to brand names and trademarks, which increases the difficulty and expense of copying them.

The exit of firms from industries with monopolistic competition is relatively simple. Nothing prevents an unprofitable firm in an industry with monopolistic competition from curtailing or shutting down production.

3.Features of pricing in conditions

monopolistic competition.

Each firm, being in conditions of monopolistic competition, pursues its own pricing policy, not taking into account the response of competitors. It follows that within a given market structure, less output is produced than under perfect competition, but with more high costs per unit of production. Decreased sales volume and higher unit costs are all the price of a greater variety of goods produced.

In Russian conditions, there are great opportunities for the development of monopolistic branded competition and the creation of a competitive pricing sphere. These markets include the markets for the following goods, including imported ones:

Soft drinks - fruit waters, lemonade, Russian kvass, Coca-Cola, Pepsi-Cola, etc.;

Vodka, cognacs, liqueurs, wines;

Bottled and canned beer;

Cigarettes and cigars, other tobacco products;

Many types of drugs that have substitutes, vitamins;

Confectionery - chocolate candies, chocolate;

Toothpaste, shaving paste, creams, shampoos, colognes,

Perfumes, detergents;

Many types of clothing, especially branded;

Many sporting goods;

Television and radio engineering, video and audio engineering;

Watches, photographic equipment and photographic materials;

Most household appliances such as refrigerators,

Washing machines, vacuum cleaners, microwave ovens, etc.;

Computer technology;

Branded furniture;

Branded household services - clothes cleaning, apartment renovation,

hairdressers, etc.;

Many shops and retail stalls in the cities.

In the market segment, a small enterprise can occupy a monopoly position (by the way, hence the name of the type of market) and dictate prices: in determining them, it lays down the amount of its own profit. In foreign practice, it is 5 - 8%, while on average this value is 1 - 3%.

Under monopolistic competition, the demand line for the manufacturer's products has a negative slope, since substitute goods are sold on the market, which makes it possible to obtain monopoly profits in the short run. Due to the absence of any significant restrictions on the entry and exit of other producers in the industry in the long run, the economic profit of all firms in the industry becomes zero.

One of important features product differentiation is the limited control over prices by producers and sellers in conditions of monopolistic competition due to the relatively large number of firms operating in a particular market sector. In monopolistic competition, consumers choose the products of certain sellers and, within certain limits, pay a higher price for them in order to realize their preferences. In such a market, sellers and buyers are not spontaneously connected, as in a market of perfect competition. However, the control of a firm operating under monopolistic competition over price is very limited, since there are many potential substitutes for its product.

The demand curve faced by a seller under monopolistic competition is highly elastic, but not perfectly elastic. The elasticity of a firm's demand curve under monopolistic competition depends on the number of competitors and the degree of product differentiation. The greater the number of competitors and the weaker the differentiation, the greater the elasticity of the demand curve for each seller, that is, the closer the situation is to the conditions of perfect competition.

Conclusion.

Monopolistic competition refers to industries in which there are a relatively large number of non-colluding firms producing differentiated products, assuming easy entry and exit from the industry.

In the short run, a monopolistic competitive firm will maximize profits or minimize losses by producing products for which marginal revenue equals marginal cost.

Over the long run, easy entry and exit from an industry results in monopolistically competitive firms earning only normal profits.

The equilibrium output of a monopolistically competitive firm in the long run is such that price exceeds marginal cost (indicating under-allocation of resources to production) and price exceeds minimum average total cost (indicating that consumers are not getting output at the lowest possible price).

Used Books:

& Fundamentals of Economics,

Penetrate faster - thanks to low prices - the entire depth of the market. Now is the time to talk about the process of pricing under perfect and imperfect competition 2.1 Pricing under perfect competition. A perfectly competitive market has the following features: 1. A large number of firms operate in this market, each of which is independent of the behavior ...

Strive for access to the global market. CONCLUSION So, summing up the topic “Pricing Mechanism in Conditions of Imperfect Competition”, it should be noted that the reasons and features of monopoly given in the work indicate the great importance of this problem. The monopoly that has developed in the economy of the Russian Federation under state ownership is not a market phenomenon. On the contrary, he...

- This is one type of market structure in which a large number of enterprises produce differentiated goods. The main feature of this structure is in the products of existing enterprises. It is very similar, but not completely interchangeable. This market structure gets its name from the fact that everyone becomes a small monopolist that produces their own special version of the product, and also because of the many competing firms that produce similar products.

The main features of monopolistic competition

• Differentiated products and a large number of competitors;
• A high degree of rivalry ensures price as well as fierce non-price competition (advertising of goods, profitable terms sales);
• The absence of dependence between companies almost completely eliminates the possibility of secret agreements;
• Free opportunity to enter and exit the market for any enterprise;
• Decreasing, forcing to constantly revise the pricing policy.

In the short term

Under the conditions of this structure, up to a certain point, demand is quite elastic with respect to price, however, the calculation of the optimal level of production that allows maximizing income is similar to a monopolistic one.

Demand line for a product DSR, has a steeper slope. Optimal production volume QSR, allowing you to get the maximum income, be at the point of intersection of marginal income and costs. Optimal Level prices P SR, corresponds to a given volume of production, reflects the demand DSR, since this price covers the averages and also provides a certain .

If the cost is below the average cost, the company needs to minimize its losses. In order to understand whether it is worth releasing products, it is necessary to determine whether the price of products exceeds . If it is higher than variable costs, then the entrepreneur should produce the optimal volume of production, since it will cover not only variable, but also part of the fixed costs. If the market value is lower than variable costs, then the release of products should be delayed.

In the long run

In the long term, other companies that have entered into begin to influence the size of profits. This leads to the fact that the total purchasing demand is distributed among all companies, the number of substitute products increases and the demand for the products of a particular firm decreases. In an attempt to increase the level of sales, existing companies spend money on advertising, promotion, improving the quality of goods, etc., and, consequently, costs increase.

This market situation will continue until the potential profit that attracts new companies disappears. As a result, the firm remains both without losses and without income.

Economic efficiency and disadvantages

The market of monopolistic competition is the most favorable option for buyers. Product differentiation provides huge selection goods and services for the population, and the price level is determined by consumer demand, and not by the enterprise. The equilibrium price in monopolistic competition is higher than the marginal cost, in contrast to the level of product prices that are set in a competitive market. That is, the price paid by consumers of additional goods will exceed their production.

The main disadvantage of monopolistic competition is the size of existing enterprises. The rapid incurrence of losses from scaling up greatly limits the size of firms. This provides stability and uncertainty market conditions and small business development. In the case of insignificant demand, firms can suffer significant financial losses and go bankrupt. And limited financial resources do not allow enterprises to use innovative technologies.

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Monopoly(Greek “monos” - one, “poleo” - sell) - a company (the situation on the market in which such a company operates) operating in the absence of significant competitors (producing goods (s) and / or providing services that do not have close substitutes). The first monopolies in history were created from above by state sanctions, when one firm was given the privileged right to trade in one or another product. At pure monopoly there is only one seller on the market. It can be a state organization, a private regulated monopoly or a private unregulated monopoly. In each individual case, pricing is different. A state monopoly can achieve a variety of goals with the help of price policy: for example, set a price below cost, if the product has importance for buyers who are unable to purchase it at full price. The price may be calculated to cover costs or generate good returns. Or it may be that the price is set very high to reduce consumption in every way. In the case of a regulated monopoly, the state set prices that provide a "fair rate of return" that will enable the organization to maintain production and, if necessary, expand it. Conversely, under an unregulated monopoly, the firm itself is free to set any price that the market can withstand. Nevertheless, for a number of reasons, firms do not always ask for the highest possible price. Here, fear of government regulation, unwillingness to attract competitors, or the desire to quickly penetrate - thanks to low prices - the entire depth of the market can play a role. The monopoly controls the sector of the market it occupies completely or to a large extent. The antimonopoly legislation of many countries considers the occupation of 30-70% of the market by one firm to be a monopoly and provides for various sanctions for such firms - price regulation, forced division of the firm, large fines, etc.

What is monopolistic competition?

Model of the market of monopolistic competition.

– type of market structure of imperfect competition. This is a common type of market, the closest to perfect competition.

Monopolistic competition- a type of industry market in which there are enough sellers selling a differentiated product that allows them to exercise some control over the selling price of a product (or service).

Monopolistic competition is not only the most common, but also the most difficult to study form of branch structures. An exact abstract model cannot be built for such an industry, as can be done in cases of pure monopoly and pure competition. Much here depends on the specific details that characterize the manufacturer's product and development strategy, which are almost impossible to predict, as well as on the nature of the strategic choices available to firms in this category.

Examples of monopolistic competitors are small chain stores, restaurants, the network communications market, and similar industries. Monopolistic competition is similar to a monopoly situation in that individual firms have the ability to control the price of their goods. It is also similar to perfect competition, since each product is sold by many firms, and there is free entry and exit in the market.

Features of monopolistic competition

An abstract model of monopolistic competition in the short run.

A market with monopolistic competition is characterized by the following features:

· A large number of buyers and sellers. In a monopolistic competition market, there are a relatively large number of sellers, each satisfying a small share of market demand on the general type of product sold by the firm and its competitors. Under monopolistic competition, the size of the market shares of firms averages from 1 to 5% of the total sales in this market, which is more than under perfect competition (up to 1%). The number of sellers leads to the fact that the latter do not consider the reaction of their rivals when choosing sales volumes and setting prices for their products, in contrast to the situation of an oligopoly, when only a few large sellers operate in the market for one product.

· Low barriers to entry into the industry. Under monopolistic competition, it is easy to establish a new firm in an industry or leave the market - entry into this industry market is not hampered by such barriers as monopoly and oligopolistic structures put in the way of a newcomer. However, this entry is not as easy as under perfect competition, since newcomers often experience difficulties with their new brand names to buyers. Examples of industries with a predominance of monopolistic competition are the markets for women's, men's or children's clothing, jewelry, shoes, soft drinks, books, as well as markets for various services - hairdressing, etc.

· Production of differentiated products with many substitutes. Although the industry market sells goods (or services) of the same type, in monopolistic competition, each seller's product has specific qualities or characteristics that serve to make some buyers prefer its product to that of competing firms. This is called product differentiation as opposed to the standardized products that characterize perfectly competitive products. The specificity of the product gives each seller a certain degree of monopoly power over the price: prestigious goods (for example, Rolex watches, Mont Blanc pens, Chanel perfumes) are always priced higher than similar goods that do not have such a famous brand name or not so brilliantly advertised.

· Presence of non-price competition. Very often, in conditions of monopolistic competition, firms, competing with each other, do not use price competition, but actively use various ways non-price competition and especially advertising. With non-price competition, such non-price parameters of products as novelty, quality, reliability, prospects, compliance with international standards, design, ease of use, after-sales service conditions, etc. become the epicenter of rivalry between manufacturers. Firms in markets with monopolistic competition seek by all means to convince the consumer that that their products differ from those of competitors in better side. Monopolistically competitive markets are constantly developing new products and improving existing ones. Product improvements may be small, but many consumers do respond to changes in product characteristics, which allows the firm to extract additional profits as long as these improvements are not adopted by its competitors.

short term

The essence of monopolistic competition is that each firm sells products for which there are many close but imperfect substitutes. As a result, each firm is dealing with a decreasing demand curve for its products. In the short run, the behavior of a firm under conditions of monopolistic competition is in many respects similar to the behavior of a monopoly. Since the product of this firm differs from the products of competing firms in special quality characteristics, which appeal to a certain category of buyers, then the firm can raise the price of its product without dropping sales, because enough consumers are willing to pay a higher price. Like a monopoly, a firm underproduces a little and overprices it. Thus, monopolistic competition is similar to a monopoly situation in that firms have the ability to control the price of their goods.

Long term

In the long run, monopolistic competition is similar to perfect competition. With free market access, the potential for profit attracts new firms with competing brands, driving profits to zero. The same process works in reverse as well. If demand in a market with monopolistic competition declined after equilibrium was reached, firms would leave the market. This is because a reduction in demand would make it impossible for firms to cover their economic costs. They will exit the industry and move their resources to more profitable ventures. When this happens, the demand and marginal revenue curves for the remaining sellers in the market will shift upwards. The exit of firms from the industry will continue until a new equilibrium is reached.

1. Abstract model of monopolistic competition in the long run

The impact of monopolistic competition on society

Under monopolistic competition, no production efficiency. In addition, accusations of unreasonable and unjustified spending on product differentiation and advertising are often heard. This puts forward the following arguments.

1. Society wastes limited rare resources to create a meaningless difference in products of the same type. Thus, aspirin remains aspirin, although for some of its patented and advertised brands, the consumer has to pay twice or more. Consumers don't really want, say, 50 different brands of soap or toothpaste that are essentially the same. As a result, consumers pay for both excessive product differentiation and advertising. Advertising costs are sometimes up to 50% or more of the selling price of the goods.

2. Differentiation and advertising seek to influence the tastes and preferences of consumers, change them, cause new needs, so it turns out that people exist to meet the needs of the company, and not companies serve people. Society has lost its original target orientation - the development of production to meet the needs of people.

4. Advertising your product becomes mandatory for a company that does not want to lose in the competition. Firms are forced to spend colossal amounts of money unproductively: these costs do not increase the demand for their product in the market, but their absence will lead to the loss of a place in the market.

6. Advertising turns into a form of tax on society. For 15 minutes of news on television, there are up to 20 minutes of advertising. When buying a newspaper or a magazine, the consumer, along with 50 pages of text of interest to him, has to pay for 75 pages of advertisements.

However, it would be unfair to see only negative sides monopolistic competition. So, the same product differentiation and advertising is not so unambiguously bad.

Their supporters point out that:

1. Product differentiation helps to most fully meet the needs of people in all their diversity.

2. Continuous improvement of the product leads to a higher standard of living.

3. Product differentiation develops in the direction of improving its quality and increasing production efficiency.

5. Differentiation and advertising stimulate competition and give impetus to the development of the entire market system. A comparison of two opposing opinions about the role of advertising and product differentiation shows once again that in economic theory there are no absolute truths and answers that are true for all cases of life.

Be that as it may, monopolistic competition is very close in many respects to perfect competition, which is practically not found in real life. Monopolistic competition is the most common type of market relations. It predominates in catering, book publishing, furniture production and sales, pharmaceuticals, etc. The number of firms in these industries ranges from 500 to 10,000. Monopolistic tendencies in this model are rather weakly expressed, and therefore it is believed that the state may practically not regulate the market of such a structure.

Determining the price and volume of production in a pure monopoly. Price discrimination

The next stage of our analysis is the study of the behavior in the market of a firm - a pure monopolist, in particular, questions at what price and in what volume the monopolist will sell his product. The optimal volume of production of a monopoly firm will depend on two factors - the market demand for its products, on the one hand, and the magnitude and structure of its costs, on the other.

Since the monopoly firm acts as an industry, the demand curve for the entire volume of goods produced by it is also the market (industry) demand curve. Thus, in contrast to perfect competition, where the demand for a firm's product is perfectly elastic and the firm can sell different quantities of the product at the same price, the demand for the monopolist's product is not perfectly elastic. The demand curve for its products has a classic downward form, and the low degree of price elasticity of demand for a monopoly product, generated by the absence of substitute goods, will result in a sharply falling nature of this schedule. The downward nature of the demand schedule means that the monopolist is obliged to lower the price of the product produced in order to sell more of his units. This fact will affect the dynamics of the indicators of new and marginal income of the company under consideration. Therefore, unlike the seller operating in conditions of perfect competition, the monopolist is faced with a situation where its gross income first has a positive trend (increases) and then, having reached a maximum, begins to fall.

For a monopoly firm, the marginal revenue curve always lies below the demand curve. This is because for a monopolist, MR will be lower than the price (except for the first unit of output), in contrast to a competitive firm, for which MR = PX. This is due to the fact that by increasing sales volumes, a monopoly firm is forced to reduce the price not only for each next unit of production, but also for all previous ones that were previously sold at a higher price.

On the demand curve for the monopolist's product (DX), two segments can be distinguished:

Elastic demand (EpD > 1), since here TR grows as the price decreases (P);

Inelastic demand (ЕрD< 1), так как здесь TR сокраща­ется по мере того, как снижается цена (Р).

A profit-maximizing monopolist will tend to avoid the inelastic section of the demand curve for his product, since marginal revenue (MR) takes negative values ​​​​on this segment. Knowing about the characteristics of the demand for the monopolist's product, about the "behavior" of the graphs of its marginal and gross income, we can proceed to consider the problem of the optimal volume of production of a monopoly producer. We use already known approaches - first we apply the method of comparing gross income and gross costs (TR and TC), and then the method of equalizing marginal indicators (MR and MC).

Graphical analysis of the situation in accordance with the first approach involves combining two graphs - TR and TC - in the same coordinate axes and searching for such a Qx value for which the distance between these curves will be maximum.

So, with production volumes from 0 to QA and from QB and more, the monopoly firm incurs losses, since in these intervals gross income is lower than gross costs (the TR graph is below the TC graph). In the interval from QA to QB, the monopolist makes a profit. In the figure, the maximum profit will be achieved by the monopolist at Qopt and the amount of profit will be the difference between TR and TC corresponding to a given output volume, i.e. ?max = TRD - TCC.

A graphical interpretation of the MR = MC method for the case of a monopoly producer is shown in the figure below.

The intersection point of the MR and MC graphs (point E) and its Qopt parameter reflects the optimal production volume. Moreover, Qopt in this figure and in the figure above quantitatively coincide. Further, according to the schedule Dx, we determine at what price this volume of production can be sold by the monopolist, this is the parameter of the point A - RA. The projection of the point B on the ordinate axis (ATCB) reflects the value of the average gross costs corresponding to the volume Qopt. Thus, the gross income of the monopolist will correspond to the area of ​​the rectangle OPAQopt, and the amount of gross costs will correspond to the area of ​​the rectangle OATCBBQopt Profit is calculated as follows:

which corresponds to the area of ​​the shaded figure. Or:

Price discrimination.

Under certain conditions, a situation may arise for a monopoly that would be impossible in a competitive market. A monopolist can charge different prices for its products to different buyers to maximize profits. This phenomenon is called price discrimination. Price discrimination is possible when doing following conditions:

1) the seller of the goods either must be a pure monopolist, or control the vast majority of the market for this product;

2) the seller must be able to divide buyers into different groups who can pay differently for the offered product, i.e. segment the market; the possibility of segmentation is explained by the fact that different market segments are characterized by demand with varying degrees of elasticity;

3) the original buyer of this product cannot sell it at a higher price to other consumers representing a different market segment.

Classic example price discrimination - the tariff policy of telephone companies, when a minute of conversation at different times of the day has a different cost. A consumer with inelastic demand (for example, the manager of a firm) will pay a high daily rate. A consumer with highly elastic demand (for example, a student or a pensioner) will pay a low evening time tariff. Manifold tariff plans offered by cellular providers can also be mentioned here as an example.

The consequences of price discrimination are as follows: a monopoly firm increases profits; with price discrimination, the demand curve for the proposed product practically coincides with the schedule of marginal income, i.e. the firm has no anti-incentives to reduce production volumes and sellers pursuing a policy of price discrimination increase the output of this product.

A graphical model illustrating the above is presented below. If we make comparisons with the situation presented in the figure above, then we can state that the optimal production volume for a firm conducting price discrimination will be determined by point A. That is, the optimal production volume for this firm will significantly exceed the output volumes of a firm that does not conduct price discrimination. (projection of point B onto the Ox axis in the figure above).

Profit with price discrimination will correspond to the area of ​​the BEAC figure, which more area rectangle ATC B R A AB in this figure.

The main features of the market of monopolistic competition.

As practice shows, in real life the conditions inherent in perfect competition and pure monopoly are rarely observed. Pure monopoly and perfect competition can be seen as ideal market structures at opposite poles. Real market structures occupy an intermediate position, combining the individual features of both pure monopoly and perfect competition. One of these market structures- monopolistic competition, for the description of which it is useful to know both the theoretical model of the market of perfect competition presented above, and the model of pure monopoly.

Conclusion.

Monopolistic competition- a market structure where the features of perfect competition prevail and there are separate elements characteristic of pure monopoly. Features of monopolistic competition:

1. A fairly significant number of small firms operate in the industry, but there are fewer of them than under perfect competition. Firms create similar but not identical products. It follows that:

An individual firm owns only a small share of the market for a given product;

The bargaining power of an individual firm is limited, hence the individual firm's control of the commodity's market yen is also limited;

There is no possibility of collusion of firms and cartelization of the industry (creation of an industry cartel), since the number of firms competing in the market is quite large;

Each firm is practically independent in its decisions and does not take into account the reaction of other competing firms when the price of its product changes.

2. The product sold in the industry is differentiable. Under monopolistic competition, firms in the market have the opportunity to produce a product that is dissimilar to those produced by competitors. Product differentiation takes the following forms:

Different product quality, i.e. goods can differ in many parameters;

Various services and conditions related to the sale of the product (quality of service);

Differences in product placement and availability (for example, a small store in a residential area may compete with a supermarket despite having a narrower range of products on offer);

Cosmetics, perfumes, pharmaceuticals, household appliances, services, etc. are examples of differentiated products. Firms, producing a differentiated product, have the opportunity to change the price of the goods sold within certain limits, and the demand curve of an individual firm has, as in the case of a monopoly, a “falling” character. Each monopolistic competitor controls a small share of the industry market. However, product differentiation leads to the fact that the single market breaks up into separate, relatively independent parts (market segments). And in such a segment, the share of a separate, perhaps even small, company can be very large. On the other hand, the goods sold by competitors are close substitutes for the given one, which means that the demand for the products of an individual firm is quite elastic and does not decrease as sharply as in the case of a monopoly.

3. Freedom of entry into the industry (to the market) and exit from it. Since firms are usually small in size under monopolistic competition, there are often no financial problems when entering the market. On the other hand, under monopolistic competition, there may be additional costs associated with the need to highlight your product (for example, advertising costs), which can become an obstacle to the entry of new firms. The existence of free entry of firms into the industry leads to the fact that, as a result of competition, it becomes a typical situation when enterprises in the long run do not receive economic profits, operating at the breakeven point.

4. Existence of non-price competition. The situation of the absence of economic profit, functioning at the break-even point in the long run cannot satisfy the entrepreneur for a long time. In an effort to obtain economic profit, he will try to find reserves to increase revenue. The possibilities of price competition in conditions of monopolistic competition are limited, and the main reserve here is non-price competition. Non-price competition is built on the use of the advantages of individual firms in the technical level, design, reliability of operation of their products. decisive role play such parameters of manufactured products as environmental friendliness, energy intensity, ergonomic and aesthetic qualities, safety in operation. As part of the implementation of non-price competition, there are several methods:

Product differentiation associated with the appearance in this moment time of a significant number of types, types, styles of the same product;

Improving the quality of the product over time, which is necessary due to the existence of competition in the industry;

Advertising. The peculiarity of this form of non-price competition is that there is an adaptation of consumer tastes to already existing species products. The purpose of advertising is to increase the company's share in the market of this product. Each firm-monopolistic competitor for successful activity must take into account not only the price of the goods and the possibility of changing it, changing the product itself, but also the possibilities of the advertising and propaganda company.

Monopolistic competition- a fairly common type of real market structures. This market structure is typical for the food industry, footwear and clothing, the furniture industry, retail, book publishing, many types of services and a number of other industries. In Russia, the state of the market in these areas can be unequivocally characterized as monopolistic competition, especially given the fact that product differentiation in these industries is very high.

So, monopolistic competition is characterized by the fact that each firm in the conditions of product differentiation has some monopoly power over its product: it can raise or lower the price of it, regardless of the actions of competitors. However, this power is limited both by the presence of a sufficiently large number of producers of similar goods, and by considerable freedom of entry into the industry of other firms. For example, "fans" of Reebok sneakers are willing to pay more for its products than for products of other companies, but if the price difference is too large, the buyer will always find analogues of lesser-known companies on the market at a lower price. The same applies to products of the cosmetics industry, the production of clothing, footwear, etc. Monopolistic competition is characterized by relatively a large number sellers who produce differentiated products ( women's clothing, furniture, books). Differentiation is the basis for creating favorable conditions for selling and updating products. An oligopoly is characterized by a small number of sellers, and this “small number” means that the decisions about the price of production are interdependent. Each firm is influenced by the decisions made by its competitors and must take those decisions into account in its own pricing and volume setting behavior. Monopolistic competition occurs when multisellers compete to sell a differentiated product in a market where new sellers can enter.

A market with monopolistic competition is characterized by the following:

1. The product of each firm trading in the market is an imperfect substitute for the goods sold by other firms. The product of each seller has exceptional qualities and characteristics that serve to make some buyers prefer his product to that of a competing firm. Product differentiation means that the item sold on the market is not standardized. This may be due to the actual and qualitative differences between products or because of perceived differences that result from differences in advertising, brand prestige or “image” associated with owning the product.

2. There are a relatively large number of sellers in the market, each of which satisfies a small but not microscopic share of the market demand for a common type of product sold by the firm and its rivals.

Under monopolistic competition, the size of the market shares of firms in general

exceed 1%, i.e. the percentage that would exist under perfect competition. Typically, a firm accounts for between 1% and 10% of market sales during a year.

3. Sellers in the market place no regard for the reactions of their rivals when choosing how to price their goods or when choosing annual sales targets. This feature is still a consequence of the relatively large number of sellers in the market with monopolistic competition, i.e. if an individual seller cuts the price, it is likely that the increase in sales will come not from one firm, but from many. As a consequence, it is unlikely that any individual competitor will incur a significant loss of market share due to a decrease in the selling price of any individual firm. Consequently, there is no reason for competitors to react by changing their policy, since the decision of one of the firms does not significantly affect their ability to make profits. The firm knows this and therefore does not take into account any possible competitor reaction when choosing its price or sales target.

4. The market has conditions for free entry and exit. With monopolistic competition, it is easy to start a firm or leave the market. Favorable market conditions with monopolistic competition will attract new sellers. However, entry into the market is not as easy as it would be under perfect competition, as new sellers often struggle with their new brands and services to buyers. Therefore, already existing firms with established reputations can maintain their advantage over new producers. Monopolistic competition is similar to a monopoly situation in that individual firms have the ability to control the price of their goods. It is also similar to perfect competition in that each commodity is sold by many firms, and there is free entry and exit in the market.

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· Economic theory. / Nauch. ed. and hands. ed. team of V.D. Kamaev. - M.: VLADOS, 1999.

In this section, we will look at the market structure in which numerous firms selling close but not perfect substitute products. This is commonly called monopolistic competition — monopoly in the sense that each manufacturer is above its version of the product and - since there is a significant number of competitors selling similar products.

The basis of the model of monopolistic competition and the name itself were developed in 1933 by Edward H. Chamberlain in his work "The Theory of Monopolistic Competition".

The main features of monopolistic competition:

• Product differentiation
• A large number of sellers
• Relatively low barriers to entry and exit from the industry
• Tough non-price competition

Product differentiation

Product differentiation — key characteristic this market structure. It assumes the presence in the industry of a group of sellers (manufacturers) who produce goods that are close, but not homogeneous in their characteristics, i.e. goods that are not perfect substitutes.

Product differentiation can be based on:

• the physical characteristics of the goods;
• location;
• "imaginary" differences related to packaging, trademark, company image, advertising.
• In addition, differentiation is sometimes divided into horizontal and vertical:
• vertical is based on the division of goods by quality or some other similar criterion, conditionally into "bad" and "good" (the choice of TV is "Temp" or "Panasonic");
• horizontal assumes that at approximately equal prices, the buyer divides goods not into good or bad, but into those that correspond to and do not correspond to his taste (the choice of a car is Volvo or Alfa-Romeo).

By creating its own version of the product, each firm acquires, as it were, a limited monopoly. There is only one manufacturer of Big Mac sandwiches, only one manufacturer of Aquafresh toothpaste, only one publisher of the School of Economics magazine, and so on. However, they all face competition from companies offering substitute products, i.e. operate under monopolistic competition.

Product differentiation creates an opportunity limited influence on market prices, since many consumers remain committed to a particular brand and firm even with some price increase. However, this impact will be relatively small due to the similarity of products of competing firms. The cross elasticity of demand between the products of monopolistic competitors is quite high. The demand curve has a slight negative slope (in contrast to the horizontal demand curve under perfect competition) and is also characterized by high price elasticity of demand.

A large number of manufacturers

Similar to perfect competition, monopolistic competition is characterized by a large number of sellers, so that the individual firm occupies a small share of the industry market. As a consequence, a monopolistic competitor is usually characterized by both absolute and relatively small size.

A large number of sellers:

• On the one side, excludes the possibility of collusion and concerted action between firms to limit output and raise prices;
• with another - does not allow firm in a significant way influence market prices.

Barriers to entry into the industry

Entry into the industry usually not difficult due to:

• small ;
• small initial investment;
• small size of existing enterprises.

However, due to product differentiation and brand loyalty, market entry is more difficult than under perfect competition. The new firm must not only produce competitive products, but also be able to attract buyers of existing firms. This may require additional costs for:

• strengthening the differentiation of its products, i.e. providing it with such qualities that would distinguish it from those already available on the market;
• advertising and sales promotion.

Non-price competition

Rigid non-price competition- also characteristic monopolistic competition. A firm operating under monopolistic competition may apply three main strategies impact on sales volume:

• change prices (i.e. implement price competition);
• produce a product with certain qualities (i.e. strengthen differentiation of your product technical specifications , quality, services and other similar indicators);
• revise advertising and marketing strategy (i.e. strengthen the differentiation of your product in the field of sales promotion).

The last two strategies are related to non-price forms of competition and are more actively used by companies. On the one hand, price competition is difficult due to product differentiation and consumer commitment to a particular trademark(a price cut may cause a less significant churn of buyers from competitors to compensate for the loss in profits), with another- a large number of firms in the industry leads to the fact that the effect of the market strategy of an individual company is distributed among such a large number competitors, which will be practically insensitive and will not cause an immediate and targeted response from other firms.

It is usually assumed that the model of monopolistic competition is most realistic in relation to the service market ( retail, services of private practitioners of doctors or lawyers, hairdressing and beauty services, etc.). As for material goods such as various varieties soap, toothpaste or soft drinks, their production is usually not characterized by small size, large numbers or freedom of entry into the market of manufacturing firms. Therefore, it is more correct to assume that the wholesale market for these goods belongs to the oligopolistic structure, and the retail market - to monopolistic competition.

Characteristics of the market of monopolistic competition

1. Competition: essence and methods. Perfect competition market. Starting the study of this topic, familiarize yourself with the main types of market models: pure competition, monopolistic competition, oligopoly, pure monopoly (McConnell K.R., Brew S.L. “Economics”, volume 1, table on p. 66). Next, move on to a more detailed discussion of the perfectly competitive market. His hallmarks are:

* atomization of supply and demand based on multiple sellers and buyers;

* Homogeneity, standardization of goods (goods are “homogeneous”);

* freedom of movement of supply and demand. Prices fluctuate freely under the influence of supply and demand;

* freedom to enter and exit the industry.

Any model in economic theory is abstract, but this market has much in common with the market for agricultural products, commodity, currency, stock exchanges.

A perfectly competitive market has many more advantages than any other market. It provides the use best technology, creates conditions for efficient allocation of resources. However, this market also has disadvantages, the most significant of which is that relatively small size firms often do not contribute to the use of scientific and technological progress.

2. Monopoly: economic nature, occurrence, types and organizational forms. A monopoly is a market situation where there is only one firm producing a product that has no close substitutes. Monopsony is the reverse of a situation where there is only one buyer of a product. Characteristic features monopolies:

* there is only one seller or one buyer in the market;

* barriers to market penetration that are insurmountable or extremely difficult to overcome;

* the company's product is unique, i.e. there are no close substitutes;

* the seller controls the price, dictates it to the market.

According to the nature of the emergence and economic content, three types of monopoly can be distinguished:

* artificial monopoly - arises and is maintained with the help of non-economic methods. It may arise on the basis of state privileges;

* natural monopoly is associated with: 1) access to unique natural resources; 2) natural monopolies are state and municipal public services;

* economic monopoly - arises in the course of competition between producers.

In the presence of a mass of fragmented producers, monopolization is usually associated with product differentiation. At the same time, free competition gives rise to the concentration of production and ownership. Concentration, in turn, at a certain stage leads to the formation of a monopoly of another type - a monopoly of large-scale production.

3. Features of the oligopolistic market. An oligopoly is close to a pure monopoly, in some cases the latter can, as it were, develop into it if, for example, the oligopolists agree on a division of the market or on a single price. In this case, a kind of “collective” monopolist grows.

The main features of the oligopolistic market:

* a small number of firms in the industry;

* relatively high barriers to entry into the industry;

* production of standardized or homogeneous products;

the possibility of influencing the price.

There are two types of oligopoly:

a) several firms producing similar (or almost) products.

b) several firms producing differentiated products that satisfy a similar need in principle.

Consider examples of oligopolistic markets and the reasons for the phenomenon of a small number of firms in the industry (scale effects, patents, control over raw materials, advertising, etc.).

An oligopolist has two ways to maximize profits:

a) traditional for any type of market - cost reduction;

b) specific - price increase.

The second way, in turn, is connected with the capacity of the market (price growth limits demand). Therefore, the firm can combine an increase in price with a decrease in output. That. and the oligopolist is not free from market laws, maximizing profit, he operates with costs, price and volume.

The oligopolistic market has a number of features in the non-price behavior of firms. Under the conditions of a secret agreement (the formation of a cartel, the participants of which agree on prices, production volumes and markets), oligopolistic firms can coordinate their pricing policy with the help of price leadership, since in an oligopoly the price is not set on the market under the influence of supply and demand, as in in the case of pure competition, but according to the “cost plus” principle: the necessary profit, taking into account the payment of taxes, is added to the average cost per unit of output. This is the “base” price, from which the real price may deviate depending on the market situation.

There are different points of view regarding the evaluation of the economic efficiency of an oligopoly. According to one of them, the advantages of an oligopolistic market include opportunities and incentives for firms to use the achievements of scientific and technical progress, the possibility of reducing costs and prices, a large range of products and high quality goods. In conclusion of this section, consider the features of the main forms of corporations and agreements of a monopolistic type in industry.

4. Characteristics of the market of monopolistic competition. Monopolistic competition is characterized by the following features:

* a large number of small manufacturers;

* significant product differentiation, especially varieties this product;

* each firm has a relatively small market share and very limited price control;

* entering the industry is relatively easy, but still more difficult than with pure competition;

* collusion aimed at limiting the volume of production and artificially raising prices is almost impossible.

In the short run, in the market for monopolistic competition, the firm is faced with a situation characteristic of pure competition. It can make profits (maximize them when marginal cost and marginal revenue are equal) or incur losses. At the same time, the ability to control the price in monopolistic competition is limited. In the long run, economic profits will attract new firms into the industry, causing a decrease (or liquidation) of profits. Losses will cause firms to leave the industry, and the remaining firms will begin to make profits.

Please note that non-price competition is actively conducted in this market. Think about what product differentiation could be related to. Formulate your attitude to advertising as a kind of non-price competition.

Literature

McConnell K.R., Brew S.L. Economics. - M.: INFRA-M, 2005. - T, 2, ch. 26, 27, 28.

Course of economic theory / Under. ed. M.N. Chepurin. - Kirov: ASA, 2007. - Ch. 7.

Hyman D.N. Modern microeconomics: analysis and application. - M.: Finance and statistics, 1992. - Vol. 2, ch. 10, 11.

Course of economic theory. General foundations of economic theory, microeconomics, macroeconomics, transition economy: Tutorial/ Head of the team of authors and scientific editor A.V. Sidorovich. - M.: MSU, "DIS", 2007. - Ch. 17.

Economic Theory: Textbook / Ed. ed. acad. IN AND. Vidyapina, A.I. Dobrynina, G.P. Zhuravleva, L.S. Tarasevich - M .: INFRA-M, 2000. - Ch. 14, 15.

Questions for self-examination

1. Describe the main types of market models. What is the criterion for selecting these models?

2. What are the characteristics of pure competition?

3. What motives will be guided by a competitive firm, applying the decision on the volume of output in the short run?

4. What are the main features of an oligopoly.

5. What is an obstacle to the secret agreement of oligopolistic firms?

6. Describe the advantages and disadvantages of the oligopolistic market.

7. Define pure monopoly. Give examples of firms close to a pure monopoly.

8. What are the consequences of monopoly?

9. Describe the advantages and disadvantages of the monopolistic competition market.

10. What type of market models, in your opinion, is the Russian economy closest to?