Monopolistic competition

Added: 2026-05-30

[00:00:00]Welcome guys monopolistic competition. Well my children I will go into it as per your reading.

[00:00:06]Although this is considered a very big topic, but according to your reading, it should take 10 minutes maximum to finish. Let's talk about monopolistic competition.

[00:00:18]Well my child monopolistic competition is made up of two words. Separate them.

[00:00:22]Monopolistic and competition.

[00:00:25]When we talk about competition, it means competitive market. When it comes to monopolistic, that means monopoly. So we're going to [sound of clearing throat] talk about a market where you'll find some elements of monopoly. Some elements of the competitive market will be available. If I have to define it in a normal way then monopolistic competition is a market where there are large number of sellers. Selling the same product but with differentiated attributes. Their color may be different, quality may be different, packaging may be different, branding may be different. Now, if you look at the vehicles, many companies would be selling 1200 cc vehicles.

[00:01:01]Many companies must be selling 1000 cc cars.

[00:01:03]But there will be difference in their packaging, you know there will be difference in the interiors.

[00:01:08]You will know there will be artificial differences. You can find many such You Know. Now, as far as soap is concerned, there are essentially many companies that are selling soap.

[00:01:17]The branding is different, the features are different, the color is different, the fragrance is different. So we call such a market monopolistic competition. Let's get started. It refers to an it set of firms that produce products which are close substitutes of each other. The products are differentiated on the basis of quality, packaging, features and branding. Let's move ahead.

[00:01:35]These are pointers to your readings.

[00:01:37]You write this down. Read the readings, it's the same thing. Even two firms may have a legal monopoly on its trademarks and brand name, so that other firms cannot produce exactly the same product, but they can produce similar products.

[00:01:49]From the viewpoint of a given firm, the production decision of its competitors will be a very important consideration in deciding how much it will produce and at what price.

[00:01:58]So here we have been told that look, you have taken the patent, you have taken the copyright. So exactly your branding will not be used.

[00:02:04]Exactly the elements you have will not be used. But something similar to that can be used.

[00:02:07]What will you do with it?

[00:02:09]He further says that from the viewpoint of a given firm, the production decision of its competitors will be a various consideration in deciding how much it will produce and at what price. You will also have to see what your competitor is making? At what price is he selling? According to that you are going to decide at what price you will sell it and how much you will be able to sell it. For example, if he already has a good monopoly in the market then you will have to keep competitive prices. It says that the demand tax facing a firm will mainly depend on the output decision and the price charged by other firms. The slope of the demand curve will depend on how similar the other firm's products are. If a large number of firms in the industry produce identical products, then the demand curve for any one of them will be flat. Each firm must sell a product for whatever price the other firms are charging for that identical product. Son, if you are selling almost the same product then you have come into almost competitive market, so the demand there will be flat. In horizontal type, you don't have much power to dictate the price at which others are selling, you will also have to sell at the same price. For example, if there is a market for photocopying, then almost all the work is being done in the same manner, so you cannot charge more in that, you cannot do that.

[00:03:17]Now if a firm is on the other hand if one firm has exclusive right to sell a particular product then it may be able to be sold at higher prices. If you have uniqueness then you should sell it at a higher price. If a firm is making a profit selling a product in an industry and other firms are not allowed to perfectly reproduce that product. Still they may produce similar set or a similar but a distinctive product which is called product differentiation. The more successful a particular firm is in creating a different product from other firms, the more monopoly power it has, that is, less elastic demand. The same thing applies if you have that power that others are not able to sell a product like yours.

[00:03:52]You are providing some different service. If you are offering some different elements then obviously you will be the one who can charge higher prices.

[00:04:01]An industry structure which has the features of competition and monopoly. As we have seen, R is called monopolistic competition. Each firm has a downward-sloping demand curve, which has some monopoly power in the sense that it can set its own price. Otherwise it would have become completely horizontal. Further [sound of clearing throat] more there are no restrictions on new firms entering the market. As more and more firms enter into the industry. So the demand for each individual firm will decrease. His demand should move leftward and the demand will become flatter.

[00:04:25]When does flattery occur? Elastic.

[00:04:27]When does elastic occur? When price sensitivity occurs. Because if other firms come and competition comes then you have to play with the price. The price has to be reduced.

[00:04:35]Next is if firms continue to enter as long as they expect to make a profit equilibrium must satisfy the following three conditions. Now, how long will new ones keep coming? Think for yourself, how long will new firms keep coming? Sir, as long as they see scope for profit. Yes. And when will they stop coming [sound of clearing throat]? Sir, when ultimately the profit becomes zero. Minded, profit here means abnormal profit.

[00:04:58]Zero profit means you will continue to earn normal profits because there are implicit costs.

[00:05:01]What are those three conditions? Price and output will lie on the demand curve. Each firm will maximize its profits. Given the market situation and entry will continue until profit becomes zero. Now I will share this with you through a diagram. I will teach you my child and also show you the readings. Let's assume the reading gives two to three pages. That's all you have to read. You can either read that or read what I just shared with you. Should make no difference.

[00:05:31]So now I will teach you that, my child. You can watch it comfortably. No problem. I told you 10 minutes, I will give it to you before 10 minutes. So, we have normalized the demand curve. You can also join. You can also make it in the middle. There is no problem. Let's join your reading.

[00:05:49]Hence Price Quantity.

[00:05:52]Now this is the average cost. Now why is there output here? Because what is P here? Equal to AC means zero profits.

[00:06:03]Ok? I can show you this. Is it okay son? Now he has said two things about this.

[00:06:11]I will discuss that as well.

[00:06:13]And then it's as good as over. Before that, let me show you.

[00:06:19]Starting from here. Ok?

[00:06:24]Made this.

[00:06:27]Wrote this theory.

[00:06:30]Wrote this theory. And he came last.

[00:06:33]We. So he says [sound of clearing throat] there are two observations about this. First all two profits are zero. The situation is still paraded to efficient. It is still Pareto efficient.

[00:06:45]Sir, how is that? I will tell you now. If the first two profits are zero, the situation is still Pareto efficient. Profits Have Nothing to Do with the Efficiency Question.

[00:06:54]When price is greater than marginal cost, then there is an efficiency argument for explaining output. When monopoly is reached, when P is greater than MC, we have already read that there is no Pareto efficiency in monopoly.

[00:07:06]Until he is first degree.

[00:07:08]So it is said that if P = AC that means it is Pareto efficient because the debate on Pareto efficiency will happen when P is greater than MC i.e. monopoly is achieved.

[00:07:18]Second, it is clear that firms will typically be operating to the left of the level of output where AC is minimized. You see, the AC is minimum here but they are producing here.

[00:07:29]Why? This has sometimes been interpreted as saying that there is monopolistic competition. There is access capacity. Access capacity means that each firm should be able to produce more but due to competition they are not able to, tell me if ideally they would have produced more then they would have been at minimum of AC, son, but unfortunately they are not at minimum of AC. They are left to the minimum of AC right and that is what is creating a problem. So this is called access capacity. It is said that if there were fewer firms, each could operate at a more efficient scale of operation, which would be better for the customer, but that is not the case because there is a lot of competition, you cannot produce that much output, you will produce a little less output, if there were two less firms then the competition would be less, the variety would also be less for the consumer, so this is monopolistic competition my child, I hope it is quite simple and you understood it well, I hope it is clear to everyone.