Price Output Determination under Monopolistic Competition: features, short run, Long run Equilibrium
Price and Output Determination Under Monopolistic Competition The concept of monopolistic competition put forth by Chamberlin is a true revolutionary as well as more realistic than either perfect competition or pure monopoly. Monopolistic competition is characterized by a large number of firms making slightly different products, in contrast with perfect competition in which all firms make the same good and perfect monopoly in which the firm makes a unique good. As monopolistically competitive firms differentiate their products, some consumers like certain brands more than others, which in turn provides a firm a bit of consumer loyalty. If a firm increase the price of its product, it does not lose all of its consumers. This is called market power and implies that the demand for a monopolistically competitive firm is downward sloping (much like a monopolist’s but at a smaller scale). According to Chamberlin “With differentiation appears monopoly and as it proceeds further, ...