Monopolistic competition

Under a monopolistic competition (also: monopolistic competition or heterogeneous Polypol ) is defined as a market may occur, similar to the Polypol very many vendors to that which is but imperfectly. The imperfection can thus be caused, for example, that the demand have spatial, temporal or functional preferences, or because the traded goods are not homogeneous, ie, differ in certain characteristics ( product differentiation).

In reality, this type of market is pretty common nowadays. Examples of such markets are markets for many goods and services for everyday use (such as bread, meat, fruit and vegetables, hairdressers, dry cleaners ).

Because of product differentiation, each provider has a certain monopolistic scope (hence the name ) within which it is possible for him similar to a monopoly, price or amount set. In this area, the monopolistic profit maximization rule, marginal revenue = marginal cost. Leaving the provider the monopolistic sector, the same applies to him as in a Polypol: The price is dictated by the market, increased the price of the providers in addition, he loses all buyers to the competition.

Is formally represented the case of monopolistic competition with the help of a doubly kinked price-demand function.

Example

A baker is to be in competition with many competitors that greatly restrict its pricing power. However, the only baker in a district may accept a slightly higher price than its surrounding competitors because its customers have a spatial preference, as they shy away from big way when purchasing a commodity of daily use. Only when the local baker is significantly more expensive than its competitors, is worthwhile for the customers of the other way.