Monopolistic Competition
MONOPOLISTIC COMPETITITION
Marshall’s perfect competition was an illusion. Mrs. Robinson’s imperfect competition and monopoly were also away from reality. Pure monopoly is a myth. Seller can claim monopoly only and only if he has command over buyer’s choice. No seller can have such a control because buyers have an alternative to buying. Not buying. So long as that option exists, monopoly remains a myth.
In mid 1930s, Prof. Chamberlin developed his theory of monopolistic competition. He pointed out the Marshall’s assumption of large number was not the reason that made a seller a ‘price taker’. In practice there may be a reasonably large number of sellers in a market. They become price makers because they have an identity that they create and preserve. Chamberlin dropped the assumption of homogeneity of product and perfect knowledge to develop his theory.
Chamberlin defined a ‘product’ in a different way. He said that a ‘product’ is a bundle of satisfaction. Anything that changes the satisfaction of the buyers would change the value of the product. He introduced the concept of ‘product differentiation’ He argued that a large mass of product is differentiated by quality, quantity, size, shape, surrounding under which the product is sold, methods of selling and the like. Even the image of the seller and the locational factors would be a part of product differentiation.
In perfect competition, buyers and sellers came together as a matter of chance. Chamberlin argued that in practice buyers and sellers come together as a matter of choice. Product differentiation creates a preference in the minds of the buyers. Buyers’ preference may be real or perceived. So long as buyers’ have a choice and a preference, the seller can create such preference for his product ane to the extent such preference has been created, the seller enjoys a monopoly of sort. How so ever little a seller be, he controls a group of buyers through the preference created in their minds and hold on
Marshall’s perfect competition was an illusion. Mrs. Robinson’s imperfect competition and monopoly were also away from reality. Pure monopoly is a myth. Seller can claim monopoly only and only if he has command over buyer’s choice. No seller can have such a control because buyers have an alternative to buying. Not buying. So long as that option exists, monopoly remains a myth.
In mid 1930s, Prof. Chamberlin developed his theory of monopolistic competition. He pointed out the Marshall’s assumption of large number was not the reason that made a seller a ‘price taker’. In practice there may be a reasonably large number of sellers in a market. They become price makers because they have an identity that they create and preserve. Chamberlin dropped the assumption of homogeneity of product and perfect knowledge to develop his theory.
Chamberlin defined a ‘product’ in a different way. He said that a ‘product’ is a bundle of satisfaction. Anything that changes the satisfaction of the buyers would change the value of the product. He introduced the concept of ‘product differentiation’ He argued that a large mass of product is differentiated by quality, quantity, size, shape, surrounding under which the product is sold, methods of selling and the like. Even the image of the seller and the locational factors would be a part of product differentiation.
In perfect competition, buyers and sellers came together as a matter of chance. Chamberlin argued that in practice buyers and sellers come together as a matter of choice. Product differentiation creates a preference in the minds of the buyers. Buyers’ preference may be real or perceived. So long as buyers’ have a choice and a preference, the seller can create such preference for his product ane to the extent such preference has been created, the seller enjoys a monopoly of sort. How so ever little a seller be, he controls a group of buyers through the preference created in their minds and hold on