Monopolistic Market: Definition, Characteristics, and Examples

Monopolistic Market Definition, Characteristics, and Examples

Nikereact.org – Monopolistic competition market is one type of imperfect competition market. This monopolistic market system was developed because there was no satisfaction in the analysis of the perfect market competition model or the monopoly market. However, if we look at the monopolistic market structure, the system is closer to a perfectly competitive market. However, producers will participate more in this type of market to produce a product that is different and has its own characteristics.

A monopolistic market is a market that has many consumers who can produce different commodities. This type of market is also often referred to as a market that has many sellers who only offer one type of product but with different quality, shape, and product size. In a monopolistic market, consumers will feel a difference from the characteristics of each product offered by one producer to another.

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With the differences in each product offered, it will reflect the true difference between the products to be purchased. But it’s also possible, the difference that is created is only the perception of each consumer. Where the products offered by various manufacturers in the market are indeed different. For example, we can see the difference in a product from its packaging or physical form. Starting from the differences in shape, size, function, and also product quality. In addition, we can also see the difference between each product from the brand, logo, and also the packaging.

Then to see more clearly about product differences, we can see from the credit period for selling these products, the ease of accessing them, the availability of commodities, locations to get communities, after sales services, and so on. As for examples of products sold in monopolistic markets that we can encounter in daily life, namely cosmetic tools, clothing, medicines, places to eat, and many more.

Definition of Monopolistic Market

Monopolistic Market Definition, Characteristics, and Examples

In a monopolistic market, there are many sellers who offer homogeneous or similar merchandise. But the products sold are distinguished by quality, shape, and size and all existing sellers must compete with the maximum. Products sold in this market have different qualities, prices and sizes even though they are in the same type of product. Determination of a fixed price will usually be determined directly by the seller. So it does not use market mechanisms.

A monopolistic market is basically a market that exists between two types of markets that are quite extreme, namely a perfectly competitive market and a monopoly market. Therefore, this type of market contains elements or characteristics that come from a monopoly competitive market and also a perfectly competitive market. In other words, a monopolistically competitive market can be defined as a market in which there are many sellers or producers who produce various products.

Characteristics of a Monopolistic Market

The following are some of the characteristics of a monopolistic market that you need to understand:

1. Having a Very Large Number of Producers or Sellers

There are many producers in a monopolistic market. So that each seller or producer must be satisfied with the relatively small market share or market share. Not only that, sellers in a monopolistic market do not have full power to determine prices in the market.

This is related to the number of sellers who are quite a lot. So that there are various difficulties related to coordination between producers or sellers. So price collusion is almost impossible. Every business owner must always actively seek his own target market.

2. Product Differentiation

Product differentiation referred to here is similar products have different characteristics. We can see these differences from the shape, size, style, quality, and others. Each manufacturer will provide a distinctive feature and a special touch on the resulting product. As well as apparel and sports equipment manufacturers such as Nike, Adidas, Fila, Skechers, and also Puma, they have similar products. Where all these companies issue the same type of shoes. But the products they produce have their own characteristics and characteristics.

Therefore, each company or producer cannot arbitrarily determine the market price, whether it is lowering or increasing the price. If one producer tries to undermine the market price, it will automatically be followed by other producers. However, producers still cannot increase product prices. Because, if someone is desperate to raise prices but competitors still maintain the previous price, then the company will suffer a loss.

3. Producer Competition Is Not Based On Price

In a monopolistic competition market, producers or sellers tend not to be able to play with prices in the market. Unless there is a consensus that is carried out simultaneously with other manufacturers. Therefore, the competition that occurs in this market system is more directed to the design, quality, marketing, and advantages of each product.

Even if there are those who want to play with prices, for example there are manufacturers who want to set high prices for the products they offer, then the producers must be able to convince consumers regarding the quality and also the advantages of these products compared to similar products belonging to competitors.

4. Freedom for New Producers to Leave and Enter the Market

All producers in this market system have the freedom to enter and exit the market. This is because the products they offer can be replaced by similar products from other manufacturers who still survive in the market. This certainly will not cause a shortage of products and make it difficult for consumers who want to find these products.

As for new producers, they do not need to have a large amount of capital to be able to join and compete for market share. As long as the products offered have affordable prices and good quality and can be accounted for. That way, consumers in the market will accept the presence of the new producer.

5. Technological Development and Innovation

Because of the intense competition and the many competitors in it. So each producer or seller is required to be able to continue to provide an innovation to the products they offer. It also causes technology to develop rapidly to keep pace with the innovations that manufacturers want.

When a manufacturer innovates, it will bring more benefits compared to normal profits when using old products. With increased income or profits, it will be easier to attract other producers to make similar or better innovations. Therefore, the concept of innovation and technology will never break as long as there is intense competition between one producer and another.

Advantages in a Monopolistic Competition Market

The graph of demand that will be faced by producers in a monopolistically competitive market is more elastic than a monopoly market. However, the level of demand does not reach a perfectly elastic property like the demand curve in a perfectly competitive market. However, in a monopolistically competitive market, you will get some advantages that cannot be obtained in other types of markets. Here is the full explanation:

a. Maximizing Profits in the Short Term

The existing demand faced by all producers in the monopolistic competition market, the majority comes from the overall consumer or market demand. Maximum profit can be obtained if producers continue to produce the goods provided until the level of achievement of MC equals MR. In that case, the company or producer will earn above-average profits in a short period of time.

b. Maximizing Long-Term Profits

With a profit that exceeds the average limit will lead to the development of producers in the market. So every producer in the market must be prepared to face less and less demand at various price levels. So, the profits to be gained are also decreasing to a normal level.

There are inefficiencies in a monopolistically competitive market
There are two reasons why inefficiency arises in this monopolistically competitive market. The first is because the selling price is greater than the marginal cost. Then the second is too much capacity. If firms experience minimum losses, they will exit the market.

So that the number of producers or sellers in the market will decrease and the number of requests obtained by existing producers will increase. With the exit of these producers from the market, this will continue until producers earn normal profits.

In a situation like this, no more producers will enter the market and no more companies will leave the market. This is what is called the long-run equilibrium of the firm in a monopolistically competitive market.

Advantages and Disadvantages of Monopolistic Competition

The following are some of the advantages and disadvantages of a monopolistic competition market that you need to understand.

The advantages of a Monopolistic Competition Market are:

a. The number of companies in the market will provide its own advantages for consumers in choosing the best goods or products for them.
b. There is freedom of entry and exit for producers. So that it will encourage producers to always innovate in every product they offer.
c. There is product differentiation that can encourage consumers to be more careful in choosing the products to be purchased and can make each consumer more selective about the products to be chosen.
d. This market is relatively easy to find because most of our daily needs are in the monopolistic market.

Disadvantages of Monopolistic Market

a. The monopolistic competition market has a fairly high level of competition, both in terms of price, quality, and service. So that producers who do not have sufficient capital and experience will leave the market faster.
b. It takes a large amount of capital to enter the market. This is because the business owners in it have high economies of scale.
c. This market can encourage various companies to always provide innovation. So that it will increase production costs which will have an impact on product prices that must be paid by consumers.

Monopoly Market Factor

The following are some of the factors that lead to the occurrence of a monopoly market, including:

1. Have Resources

Source companies can monopolize the market because the ownership of unique and special resources is not owned by other companies. The trigger for a monopoly economy is the existence of a powerful company, be it all the raw materials available or most of it.

2. Economies of Scale

The company will get the maximum profit if the level of production in the company is large enough. Because, when a company reaches a situation where production costs are minimum, then the amount of production is almost the same as the demand in the market.

This can have an impact on decreasing product prices if the production is higher and at a high level of production as well. Then the price is made as low as possible, so that newly joined companies will not be able to enter and compete with other companies that have developed first. That can trigger the emergence of a monopoly market.

3. Monopoly Rights Revenue from the Government

Regulations made by the government can also create monopoly power. Examples include copyright regulations and patents.

Copyrights and patents are legal guarantees that are useful for avoiding plagiarism. An attempt to develop a type of technology to be able to create new products will provide benefits for the company itself. So the technology is prohibited and the government gives sanctions or penalties to companies that do plagiarism or plagiarism.

Example of a Monopolistic Market

The following are examples of monopolistic competition markets that are important to know:

a. Cigarette factory

Cigarette factories such as Djarum, Gudang Garam, Dji Sam Soe, and others, both produce cigarettes. But each company has its own characteristics. In fact, the prices set by each company are also different. There is no standard that can determine that the price of the product must be the same or uniform.

In addition, each company has the power to influence the market using its products. However, they cannot exert a price influence on the overall market price or the prices set by their competitors. As for other differences that we can see from all the examples of products from the manufacturers above, they are regarding the cigarette blend, the appearance of the packaging design, and also the flavor variants provided. Then, the number of cigarettes in the package also depends on each manufacturer.

b. Motorcycle Factory

The next example of a monopolistic competition market that exists in Indonesia is a Honda or Yamaha motorcycle factory. Where Honda motorcycles are always considered more efficient than other brand motorcycles. Meanwhile, the Yamaha motorcycle is considered to have superior power compared to other motorcycles.

This is one example that exists in a monopolistically competitive market. Where the two brands both produce motorcycles. However, the two have quite different characteristics.

Thus a discussion of the monopolistic market along with its characteristics and examples. Where from the explanation above we can draw the conclusion that a monopolistic market is a market that was developed because there is no satisfaction in a perfectly competitive market and a monopoly market. In other words, a monopolistic market is a combination of a perfectly competitive market and a monopoly market.

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