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Monopolistic Competition

  Monopolistic competition, in economic terms, is a halfway house between perfect competition and monopoly. This concept of market structure was developed in the US by Edward H. Chamberlin (1889 - 1967) for his doctoral dissertation at Harvard in 1933. Also in the 1930s, a similar concept was developed by British economist , Joan Robinson (1903 - 1983), who gave her concept the differentiated name ‘imperfect competition’. Chamberlin is credited with a more penetrating analysis of advertising and location as well as establishing the need of new theory rather than just a slight modification of the theory of monopoly.

Both Chamberlin and Robinson argued that few firms enjoyed a pure monopoly, that oligopoly was more common. Even where there are many competitors, firms enjoyed some discretion in setting their prices because their products were differentiated from those of their competitors. Although this did not result in monopoly profits, their prices were higher and output lower than they would be under perfect competition. A firm in monopolistic competition attempts to differentiate its product from others and acquire consumer loyalty for its particular product in order to gain market power and higher profit. Advertising plays a large role in these efforts, and locational advantage can make a difference. The large number of firms means there is not the degree of interdependence that exists among oligopolists. TF



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