4.4 Monopolistic Competition

Fast food franchises

• Large number of sellers

  • small market shares

  • no collusion (companies team up to secretly cheat other companies)

  • independent action

• Easy entry and exit

• Advertising

• Differentiated products

  • product attributes

  • Service

  • Location

  • Brand names and packaging

  • some control over price

• Demand (D=AR=P) is more elastic than monopoly

  • more substitutes

• New competition provides other goods in the market so demand for your good would fall

• With economic losses, firms will exit the market

  • fewer competitors means your demand will increase

• Not productively efficient

  • P does not = ATC

  • Excess capacity

• Not Allocatively efficient

  • P does not = MC