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Pros and Cons of Monopolistic Competition

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Monopolistic competition is used to define the usual market structure in which one product has many competitors but each product is slightly different. The difference can be in the quality, branding or even the price. A product is priced in competition with some other product without considering the impact that the imperfect product might have on the market. If a person wants to buy a pair of jogging shoes, he has a variety of choices such as Nike, Adidas and many other brands and no matter which brand he buys the end purpose is the same: the shoes will be worn for jogging or other physical activities.

Like everything else, monopolistic competition has certain inherent advantages and disadvantages. One great advantage that the consumer enjoys is that he/she can access all desired information about the product online and make a purchase decision based on that knowledge. They can then physically evaluate the product physically and if he/she liked the product, or it lives up to the information that the consumer has acquired, the product can be bought. This saves a lot of time for both the consumer and the product, because the consumer knows what to ask for and in which outlet it is in stock. Consumers can also order the product online and have it shipped to his house for the same price.

The disadvantage is that the apparent prestige of the product makes the consumer more money for the product. This means that the customer is paying for the prestige and not for the actual benefits of the product. In buying a monopolistic product, the consumer has to pay the asked for the price because of a lack of options. A competitive monopoly provides the consumer with several different options because the difference between the products is negligible.  This gives the consumer several choices because although the appearance of the product may be different such as different packaging or colors, etc the use of the product is identical.

Other facts about monopolistic competition are that All the firms manufacturing an similar but not identical product make independent decisions about price and the amount to be produced in line with its costs and market segment. Since there are no major obstacles to entering the market, the producer is free to enter or leave the market according to his own priorities. All producers have knowledge about its competitor’s products, but that knowledge may be incomplete, hence imperfect. Firms competing under monopolistic competition usually need aggressive advertising as part of their marketing strategy and Companies that set prices usually face declining demand.