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Unit-14: Theory of Monopolistic Competition



            Self Assessment                                                                          Notes

            State whether the following statements are True/False:
              9.  Economist, Kelvin Lancaster admits the opinion that monopolistic competition is wasteful.
              10.  Product differentiation is not generally a global phenomenon.
              11.  Non-price competition is that competition in which sellers do conflicts for selling through other
               methods in the place of decreasing cost.
              12.  Selling costs are those costs which are used for the intension of changing in the situation and shape
               of demand curve of any product.


            14.8  Empirical Evidence

            Product differentiation is the global phenomenon. Actually, a mandatory condition of reaction of production
            is made in all economies of the world in protracted time. Increase and globalized reaction in international
            competition have made the thought of product differentiation very hard. Undoubtedly, product differentiation
            is the distinct quality of monopolistic competition even then it is believed that monopolistic competition (a kind
            of market) is not more extensive in market. Actually, the economists believe that there may be any monopoly
            behaviour present in market. How can we coordinate both the facts: One is that the product differentiation
            is expanding as market behaviour; second, the monopoly competition (production differentiation is the mail
            characteristics of it) is not seen in real life. The reality is that there are fewer firms which differentiate the
            production of product. The product differentiation much occurs in consumer goods like Soap, Cigarette,
            Chemical and Fast Food. But these products have been produced by those big firms whose quantity is very
            low. McDonald’s, Pizza Hut, Sub way, Dominos and KFC are some firms which are brands in processed food
            items. How this industry can add in the market? Definitely, this is not perfect competition or monopoly or
            monopolistic competition. The place for this is that place of market which is called Oligopoly and the main
            characteristic is competition among the few firms. This is described in next unit.




                      Give your opinion in Excess Capacity.




            14.9  Non-price Competition

            The firms can opt two methods in monopolistic competition to raise its profit – (i) Price Competition
            (ii) Non-price Competition. In price competition, firm decreases its price. By this there may be no profit
            maximization because if a firm decreases its price, other firms also do this technique. Thus, the part of
            any firm doesn’t go ahead because there is no sale increment in either of the firms. So in the monopolistic
            competition, firms mostly opt non-price competition.
            In the words of Nicholson, “Non-price competition is the competition by sellers for sales by means
            of other than price cutting.”
            The  non-price  competition  means  the  technique  which  firms  adopt  without  changing  the  price  of
            product to lure the customers.
            There are many ways by which the firms use to attract the customer like to change the quality of product,
            change in the place of sale, to give advertising, to give free gift with product like spoon, calendar, glass,
            ball pen etc., goods packaging, free home delivery etc. Thus every firm uses these techniques to attract
            the customers by giving such services. This competition is called non-price competition.




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