INTRODUCTION
When it comes to goods and services it seems as if we reside in a country overflowing
with persuasive advertisements and diverse choices. This has a lot to do with monopolistic
competition. Residents of monopolistically competitive regions find it hard to believe that there are locations where advertisements are almost non existent and choices are limited. Places like these lack monopolistic competition, but instead have almost pure competition. Let's take a closer look between the two very different market structures.
PURE COMPETITION
In a purely competitive market structure a firm sells standardized goods set at market
price. Advertisements and brand names are virtually absent in a purely competitive situation. There is a high number of sellers as well as a high number of buyers and entry and exist into the market is fairly simple. Also firms in this type of structure are price takers. The producers must sell as many goods as they can at market price leaving them with no control over the cost. Purely competitive markets are rare, but some examples are car dealers, real estate agents, the
agricultural industry, and the local dry cleaners.
MONOPOLISTIC COMPETITION
In monopolistic competition firms sell brand name "differentiated" goods and services and
have some say over the price. As in pure competition exit and entry is also quite simple. There is a big number of sellers and even a bigger number of buyers. In monopolistic competition you have both price competition and non-price competition. A fairly rewarding profit can be earned in such a market. Some examples of monopolistic competition are grocery stores such as Vons or Ralphs, restaurants like Burger King and Carl's Jr. and hotels ranging from the Holiday Inn to the Ramada.
MONOPOLISTIC VS. PURE
There are many pros and cons of monopolistic and pure competition. In monopolistic
competition the public is given more vari...