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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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