Explain a Concept

Topics: Perfect competition, Monopoly, Economics Pages: 2 (667 words) Published: June 25, 2013
Monopolistically competitive market
In Principles of Economics (third edition), N. Gregory Mankiw describes the market as the combination of buyers and sellers of a particular good or service (64). Economists have defined three key elements for any industry to be classified in the market: the number of firms, the similarity of the products and the ease of entering a certain industry. By using these features, four market structures can be classified—perfect competition, monopolistic competition, oligopoly and monopoly (442). Among all the markets, monopolistic competition can be the most common structure related to our daily life. Restaurants, clothing stores, coffeehouses, and supermarkets are all examples of the monopolistically competitive industry. Therefore, it is important to understand what monopolistic competition is and learn how to gain profit in this market. According to Microeconomics (international edition) by R. Glenn Hubbard and Anthony P. O’Brien, monopolistic competition is in which many firms sell similar but not identical products with almost no barriers for the new comers (478). Discriminating the differences of the markets is essential, not only for economists, but also for the people who want to start their own business. Among four market structures, oligopoly and monopoly can be distinguished easily since they possess relatively small amount of firms and are difficult to enter (442). But monopolistic competition and perfect competition—a market structure in which many sellers sell homogenous products (443) — share many features since they all have many firms and free enter, which can make people confused. Therefore, it is important to find out the differences between these two markets. In Microeconomics (international edition) R. Glenn and Anthony point out that the ability to decide the market price – also defined as market power (548) – can be one of the key distinctions (489). Although the products sold by monopolistically competitive...


Cited: 1. Hubbard, R. Glenn, P. O’Brien, Anthony. “Microeconomics, Fourth Edition, International Edition”. London: Pearson Education, April 2012. Print.
2. Mankiw, N. Gregory. “Principles of Economics, Third Edition”. Mason: Thomson South-Western Publish, 2004. Print.
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