Monopolistic determined in monopolistic competition. …traynham/ch14 edited lecture.pdf ·
Monopolistic practices
-
Upload
abi-mithra -
Category
Economy & Finance
-
view
110 -
download
0
Transcript of Monopolistic practices
![Page 1: Monopolistic practices](https://reader037.fdocuments.us/reader037/viewer/2022102918/5aaaff517f8b9a336d8b45bd/html5/thumbnails/1.jpg)
MONOPOLISTIC PRACTICES & COMPETITION COMMISSION IN INDIAN ECONOMY
Presented By
G.Abirami
B.Gayathri
R.Gowsalya
I.Preeithi
K.Sowmiyaa
J.Sridevi
R.Veena
M.B.A – Ist Year
![Page 2: Monopolistic practices](https://reader037.fdocuments.us/reader037/viewer/2022102918/5aaaff517f8b9a336d8b45bd/html5/thumbnails/2.jpg)
INTRODUCTION
Monopolistic competition is a type of imperfect competition such that many producers sell
products that are differentiated from one another (e.g. by branding or quality) and hence are
not perfect substitutes . In monopolistic competition, a firm takes the prices charged by its
rivals as given and ignores the impact of its own prices on the prices of other firms
Main features of monopolistic competition
Many sellers
Product differentiation: similar but non-identical products
Free entry and exit
![Page 3: Monopolistic practices](https://reader037.fdocuments.us/reader037/viewer/2022102918/5aaaff517f8b9a336d8b45bd/html5/thumbnails/3.jpg)
MAIN FEATURES
Many Sellers
There are many firms competing for the same group of customers.
Product examples include books, CDs, movies, computer games, restaurants,
piano lessons, cookies, furniture, etc.
This feature of monopolistic competition is shared with perfect competition.
So, the decisions made by one firm do not affect other firms in any perceptible way
![Page 4: Monopolistic practices](https://reader037.fdocuments.us/reader037/viewer/2022102918/5aaaff517f8b9a336d8b45bd/html5/thumbnails/4.jpg)
MAIN FEATURES
Product Differentiation
Each firm produces a product that is at least slightly different from those of other
firms.
Rather than being a price taker, each firm faces a downward-sloping demand curve.
Demand
Quantity
Price
![Page 5: Monopolistic practices](https://reader037.fdocuments.us/reader037/viewer/2022102918/5aaaff517f8b9a336d8b45bd/html5/thumbnails/5.jpg)
MAIN FEATURES
Free Entry or Exit
Firms can enter or exit the market without any difficulty.
The number of firms in the market adjusts until economic profits are zero.
This is another feature of monopolistic competition that it shares with perfect
competition
![Page 6: Monopolistic practices](https://reader037.fdocuments.us/reader037/viewer/2022102918/5aaaff517f8b9a336d8b45bd/html5/thumbnails/6.jpg)
MARKET STRUCTURE
Market structure is the focus real-world competition.
Market structure refers to the physical characteristics of the market
within which firms interact.
Market structure involves the number of firms in the market and the
barriers to entry.
Perfect competition, with an infinite number of firms, and monopoly, with
a single firm, are polar opposites.
Monopolistic competition and oligopoly lie between these two extremes.
![Page 7: Monopolistic practices](https://reader037.fdocuments.us/reader037/viewer/2022102918/5aaaff517f8b9a336d8b45bd/html5/thumbnails/7.jpg)
MONOPOLISTIC COMPETITION
Monopolistic competition is a market structure in which there are
many firms selling differentiated products.
There are few barriers to entry.
Oligopoly is a market structure in which there are a few
interdependent firms.
There are often significant barriers to entry.
![Page 8: Monopolistic practices](https://reader037.fdocuments.us/reader037/viewer/2022102918/5aaaff517f8b9a336d8b45bd/html5/thumbnails/8.jpg)
CHARACTERISTICS
Monopolistic competition is a market with the following
characteristics:
A large number of firms.
Each firm produces a differentiated product.
Firms compete on product quality, price, and marketing.
Firms are free to enter and exit the industry.
![Page 9: Monopolistic practices](https://reader037.fdocuments.us/reader037/viewer/2022102918/5aaaff517f8b9a336d8b45bd/html5/thumbnails/9.jpg)
COMPETITION COMMISSSION
Competition refers to economic rivalry amongst
Enterprises to control market for products (goods and services)
Level of Competition does not depends
Number of players in an industry but on degree of contestability
•Contest ability involves ease of entry and exit
•Concept of relevant market: Relevant geographical
![Page 10: Monopolistic practices](https://reader037.fdocuments.us/reader037/viewer/2022102918/5aaaff517f8b9a336d8b45bd/html5/thumbnails/10.jpg)
BENEFITS OF COMPETITION
Competition in markets
promotes efficiency
leads to higher productivity
punishes the laggards
enhances choice, improves quality
reduces costs
facilitates better governance
![Page 11: Monopolistic practices](https://reader037.fdocuments.us/reader037/viewer/2022102918/5aaaff517f8b9a336d8b45bd/html5/thumbnails/11.jpg)
MAIN FEATURES OF COMPETITION ACT -1 & 2
Prohibits Anti -Competitive Agreements.
Prohibits Abuse of Dominant Position.
Provides for Regulation of Combinations
Main features of Competition Act -2
Price fixing , Bid rigging
Quantity limiting
Market sharing
![Page 12: Monopolistic practices](https://reader037.fdocuments.us/reader037/viewer/2022102918/5aaaff517f8b9a336d8b45bd/html5/thumbnails/12.jpg)
COMPETING ON QUALITY, PRICE & MARKETING
Product differentiation enables firms to compete in three areas:
quality, price, and marketing.
Quality includes design, reliability, and service.
Because firms produce differentiated products, each firm has a
downward-sloping demand curve for its own product.
But there is a tradeoff between price and quality.
Differentiated products must be marketed using advertising and
packaging.
![Page 13: Monopolistic practices](https://reader037.fdocuments.us/reader037/viewer/2022102918/5aaaff517f8b9a336d8b45bd/html5/thumbnails/13.jpg)
TYPES OF MARKET STRUCTURES
• Tap water
• Cable TV
Monopoly
• Novels
• Movies
Monopolistic
Competition
• Tennis balls
• Cigarettes
Oligopoly
Number of Firms?
Perfect
• Wheat
• Milk
Competition
Type of Products?
Identical
products
Differentiated
products
One
firm
Few
firms
Many
firms
13
![Page 14: Monopolistic practices](https://reader037.fdocuments.us/reader037/viewer/2022102918/5aaaff517f8b9a336d8b45bd/html5/thumbnails/14.jpg)
MONOPOLISTIC Vs PERFECT COMPETITION
Excess Capacity
There is no excess capacity in perfect competition in the long run.
Free entry results in competitive firms producing at the point where
average total cost is minimized, which is the efficient scale of the firm.
There is excess capacity in monopolistic competition in the long run.
In monopolistic competition, output is less than the efficient scale of
perfect competition.
![Page 15: Monopolistic practices](https://reader037.fdocuments.us/reader037/viewer/2022102918/5aaaff517f8b9a336d8b45bd/html5/thumbnails/15.jpg)
MONOPOLISTIC COMPETITION IN THE SHORT RUN
Quantity0
Price
Profit-
maximizing
quantity
Price
Demand
MR
ATC
(a) Firm Makes Profit
Average
total costProfit
MC
15
These profits will
not last.
Short-run
economic profits
encourage new
firms to enter the
market.
This reduces the
demand faced by
firms already in the
market (incumbent
firms)
Incumbent firms’
demand curves
shift to the left.
Their profits fall…
![Page 16: Monopolistic practices](https://reader037.fdocuments.us/reader037/viewer/2022102918/5aaaff517f8b9a336d8b45bd/html5/thumbnails/16.jpg)
MONOPOLISTICALLY COMPETITIVE FIRM IN SHORT RUN
Short-run economic losses encourage firms to exit the market. This:
Decreases the number of products offered.
Increases demand faced by the remaining firms.
Shifts the remaining firms’ demand curves to the right.
Increases the remaining firms’ profits.
![Page 17: Monopolistic practices](https://reader037.fdocuments.us/reader037/viewer/2022102918/5aaaff517f8b9a336d8b45bd/html5/thumbnails/17.jpg)
MONOPOLISTICALLY COMPETITIVE FIRM IN LONG RUN
As in a monopoly, price exceeds marginal cost.
Profit maximization requires marginal revenue to equal marginal cost.
The downward-sloping demand curve makes marginal revenue less than price.
As in a competitive market, price equals average total cost.
Free entry and exit drive economic profit to zero
![Page 18: Monopolistic practices](https://reader037.fdocuments.us/reader037/viewer/2022102918/5aaaff517f8b9a336d8b45bd/html5/thumbnails/18.jpg)
Contd…
Zero Economic Profit
In the long run, economic profit induces entry.
And entry continues as long as firms in the industry make an
economic profit—as long as (P > ATC).
In the long run, a firm in monopolistic competition maximizes its
profit by producing the quantity at which its marginal revenue
equals its marginal cost, MR = MC.
![Page 19: Monopolistic practices](https://reader037.fdocuments.us/reader037/viewer/2022102918/5aaaff517f8b9a336d8b45bd/html5/thumbnails/19.jpg)
MONOPOLISTIC COMPETITION IN LONG RUN
Quantity
Price
0
DemandMR
ATC
MC
Profit-maximizing
quantity
P = ATC
19
We have seen that in
the long run profits
cannot be positive or
negative.
Therefore, profits
must be zero!
Note that P = ATC >
MR = MC in long run
equilibrium.
MR = MC
![Page 20: Monopolistic practices](https://reader037.fdocuments.us/reader037/viewer/2022102918/5aaaff517f8b9a336d8b45bd/html5/thumbnails/20.jpg)
ADVERTISING
When firms sell differentiated products, each firm has an incentive to
advertise in order to attract more buyers to its particular product.
Under perfect competition, there is no such incentive
Under monopoly, there is some incentive to advertise, but not a whole
lot.
After all, the monopolist has no rivals.
![Page 21: Monopolistic practices](https://reader037.fdocuments.us/reader037/viewer/2022102918/5aaaff517f8b9a336d8b45bd/html5/thumbnails/21.jpg)
Contd…
Firms that sell highly differentiated consumer goods—such as over-the-counter
drugs, perfumes, soft drinks, breakfast cereals—typically spend between 10 and 20
percent of revenue on advertising.
Firms that sell industrial products—such as drill presses and communications
satellites—typically spend very little on advertising
Firms that sell undifferentiated products—such as wheat, peanuts, or crude oil—
spend nothing at all
Overall, about 2 percent of total revenue, or over $200 billion a year, is spent on
advertising.
![Page 22: Monopolistic practices](https://reader037.fdocuments.us/reader037/viewer/2022102918/5aaaff517f8b9a336d8b45bd/html5/thumbnails/22.jpg)
Contd…
Critics of advertising argue that firms advertise in order to manipulate
people’s tastes.
They also argue that it impedes competition by implying that products are
more different than they truly are.
Defenders argue that advertising provides information to consumers
They also argue that advertising increases competition by informing
consumers of their options and enabling them to do comparison shopping
![Page 23: Monopolistic practices](https://reader037.fdocuments.us/reader037/viewer/2022102918/5aaaff517f8b9a336d8b45bd/html5/thumbnails/23.jpg)
BRAND NAMES
Economists have argued that brand names may be a useful way for
consumers to ensure that the goods they are buying are of high quality.
providing information about quality.
giving firms incentive to maintain high quality.
The question, however, is whether brand name products are better than
generics by an extent that justifies their higher prices
![Page 24: Monopolistic practices](https://reader037.fdocuments.us/reader037/viewer/2022102918/5aaaff517f8b9a336d8b45bd/html5/thumbnails/24.jpg)
CONCLUSIONS
Competition enforcement leads to consumer welfare directly and
indirectly
Stakeholders need to recognize their role in promoting competition
Policymakers/Government need to prioritize competition reforms
CCI to remain independent
CCI to create a public buy in
Consumer movement: natural allies of a competition regime
![Page 25: Monopolistic practices](https://reader037.fdocuments.us/reader037/viewer/2022102918/5aaaff517f8b9a336d8b45bd/html5/thumbnails/25.jpg)
THANK YOU