Monopolistic Competition Examples

Examples of Monopolistic Competition

The example of the monopolistic competition includes beauty products that have a very large number of sellers and the products sold by every company which are similar yet not identical and these sellers cannot compete upon prices as they can charge prices based on the uniqueness of the product they are offering and this business has relatively low barriers to enter and exit the market.

Before going through the examples, first, let’s understand the meaning of monopoly competition.

Meaning of Monopolistic Competition

Monopolistic Competition is a market structure where various firms produce and offer differentiated products and/ or services, which are close but not perfect substitutes with each other. The firms highly compete with each other on various factors other than prices.

Top 3 Real-Life Examples of Monopolistic Competition

The following monopolistic competition example provides an outline of the most common market structure of Monopolistic Competition. It is impossible to provide a complete set of examples that address every variation in every situation since there are thousands of such markets. Each real-life example of the Monopolistic Competition states the topic, the relevant reasons, and additional comments as needed

Monopolistic-Competition-Examples

Example #1 – Coffee Shops or Houses or Chains

Coffee shops or houses or chains are a classic example of monopolistic competition.

A Large number of sellers

Coffee has a very large number of sellers including hundreds of reputed global coffee chains, local coffee houses and tons of street coffee vendors.

Product is Similar but not Identical

Let’s say Starbucks of the USA called the king of all coffee chains has a presence in over 65 countries of the world and Costa Coffee, the best coffee chain in Europe comes second in world rank after Starbucks.

The two globally reputed coffee chains that both sell a similar product ‘coffee’ but the coffee is not the same at both the outlets. A Difference is created by the quality of coffee, customer service or hospitality, and prices. Both the coffee houses are healthy competing to serve better products and services.

However coffee is not just served by Starbucks or Costa but there are various big global coffee chains other than these two like Dunkin Donuts, McDonalds or McCafe, etc.

Non-Price Competition

Note that one of the defining traits of a monopolistic competitive market is that there is a significant amount of non-price competition. I.e. firms cannot compete upon prices

For example, a street vendor is offering coffee at $0.5 per coffee cup but Starbucks charges about $5 for a single cup of coffee. Now the street vendor cannot compete Starbucks on the basis of charging low prices because Starbucks differentiate its product through the quality of their coffee, expensive crockery, better hospitality, the infrastructure of their coffee houses, etc.

Less Pricing Power

Unlike firms in perfect competition where they have negligible pricing powers and prices are fully dependent on markets, firms in the monopolistic competition have low but little power over prices. Different firms can charge higher or lower based on product differentiation.

For example, Costa Coffee has higher rates as compared to Starbucks and they both charge much higher prices than a street vendor. However, the demand for coffee is very high since every coffee seller gets its customers.

Low Barriers to Entry and Exit

Due to a monopolistic competitive market, the coffee business has low barriers to entry and exit. However, the existing or established businesses of the market want barriers to be high.

For example, the coffee business has low startup costs, i.e. low capital expenditure on property, plant, and equipment. In fact, lots of street vendors offer good quality coffees at cheaper rates which are served on small food trucks or stalls.

Governmental regulations are less, other than essential food quality standards; the coffee business has no other strict governmental obligations to be followed.

Example #2 – Farmers

From coffee shops, we next come to coffee producers. This example talks about farmers who produce food for the entire 7.7 billion population of the world and about 80% of the world’s food.

Farmers also work in a monopolistic competitive market where a large number of farmers (there are around 570 million farmers all around the world) produce various similar crops which can be differentiated based on quality, size, etc.

Let’s take the example of a very famous summer crop called ‘Mango’ (Mangifera indica).

A Large Number of Sellers

India the largest producer of mango has a large number of mango cultivators.

Product is Similar but not Identical

In India over 1000 varieties of mangoes exist, where only 20 varieties are commercially cultivated and only 5 of them are exported including Alphonsus.

Product Differentiation

The most important factor to differentiate mangos is through quality; say whether it is organic or inorganic. If it is inorganic then the level of usage of chemicals (including pesticides and chemical fertilizers) affects quality checks.

Less Pricing Power

Generally, the market rates of mango or any other crop are not decided by the farmer. Prices are mainly dependent on demand and supply chain, governmental influences, and a variety of mango. However, being a seasonal crop demand remains high thus level of supply inflates or deflates price structure. Mango being a perishable product, its quality also affects prices.

Low Barriers to Entry and Exit

The business of farming has low barriers to entry. The startup cost is low excluding purchasing cost of land or if the land is taken on lease. However farming business is mostly hereditary all around the world where the farming lands are inherited from generation to generation. In other cases, the government of every nation provides incentives to new farmers and helps them with money, technology, and education.

Example #3 – Retail Industry

This is a prime example used by various economists to explain the monopolistic competitive market.

The retail industry consists of vast markets that include various goods and brands with a single common goal of selling their products rapidly.

A Large Number of Sellers

Apart from a large number of small local retailers conducting grocery stores or a clothing outlet, there are elephant huge players which are globally popular as well as world leaders of the retail industry like:

Wal-Mart is the biggest retailer in the world. It has recently entered into the E-commerce business by acquiring Flipkart, India’s largest e-commerce company. Amazon is the biggest online retailer in the world. And Alibaba is another major global giant in the retail industry.

Product Differentiation

In the retail industry, companies can differentiate their products by using color, size, features, performance, and accessibility. Companies use heavy advertising and apply various marketing strategies to make their product look more appealing to customers than other similar products.

Differentiation can also be made through a better distribution structure. Online selling provides an advantage over other retailers.

Less Pricing Power

Customers have full knowledge about the market, the brand, and the product, thus sellers cannot artificially inflate product prices, otherwise, customers will be forced to buy the substitutes of even a well-known brand.

Low Barriers to Entry and Exit

Entry to the retail industry is very easy, even an individual can enter with the most basic governmental obligations and licensing. The initial cost varies depends on the level of business e.g. a small grocery store with very basic items requires very less amount of money, but to start a mall that includes every aspect of retailing needs huge funds.

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