Monopolistic Market: Definition, Characteristics, and Examples

Monopolistic Market – Monopolistic competition market is a type of imperfect competition market. This monopolistic market system was developed due to the lack of satisfaction in the analysis of the perfect market competition model or monopoly market. However, if we look at it from a 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 a different commodity. 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 with other producers.

With the difference in each product offered, it will reflect the real difference between the products to be purchased. But it is also possible that 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 differences in shape, size, function, and also product quality. In addition, we can see the differences between each product from the brand, logo, and also the packaging.

Then to see more clearly regarding product differences, we can look at the product sales credit period, ease of access, commodity availability, location to get community, after sales service, and so on. As for examples of products sold in monopolistic markets that we can encounter in everyday life, namely cosmetics, clothing, medicines, places to eat, and many more.

Definition of Monopolistic Market

In a monopolistic market, there are many sellers offering homogeneous or similar merchandise. But the products sold are distinguished by their quality, shape, and size, and all existing sellers must compete optimally. Products sold in this market have different qualities, prices and sizes even in one type of product. Fixed price determination 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 extreme types of markets, namely perfect competition markets and monopoly markets. Therefore, each of these types of markets contains elements or characteristics derived from monopoly competition markets and perfect competition markets. In other words, a monopolistic competition market can be interpreted as a market which has many sellers or producers who produce a variety of 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 a 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 various difficulties arise related to coordination between producers or sellers. So price collusion is almost impossible. Every business owner must always actively seek their own target market.

2. Product Differentiation

The product differentiation referred to here is a similar product having different characteristics. We can see the difference from the shape, size, pattern, quality, and others. Each manufacturer will give characteristics and a special touch to the products they produce. Like apparel manufacturers and also sports equipment such as Nike, Adidas, Fila, Skechers, and also Puma have similar products. Where all these companies issue the same type of shoes. But the products they produce have their own characteristics and characteristics.

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Therefore, every company or producer cannot arbitrarily determine market prices, be it lowering or increasing prices. If one producer tries to undermine the market price, other producers will automatically follow suit. However, producers still cannot increase product prices. This is because if someone is determined to raise their price but their competitors maintain their previous price, then the company will incur a loss.

3. Manufacturer Competition 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 someone wants to play with the price, for example there are manufacturers who want to set high prices for the products they offer, then these producers must be able to convince consumers regarding the quality and also the advantages of these products compared to similar products owned by competitors.

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

All producers in this market system have the freedom to enter and leave the market. This is because the products they offer can be replaced by similar products from other manufacturers that still survive in the market. This certainly will not cause product scarcity and inconvenience consumers who want to find these products.

Meanwhile for new producers, they do not need to have a large amount of capital to be able to join and compete for market share. Provided that the product offered has an affordable price and is of good quality and can be accounted for. That way, consumers in the market will accept the presence of the new producer.

5. Development of Technology and Innovation

Because there is intense competition and there are many competitors in it. So every producer or seller is required to be able to continue to provide innovation to the products they offer. This also causes technology to develop rapidly to keep up with the innovations desired by manufacturers.

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

Advantages In Monopolistic Competition Markets

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

a. Maximizing Profits In The Short Term

The demand that is faced by all producers in a monopolistic competitive market is the majority of which comes from the overall consumer or market demand. The maximum profit can be obtained if the producer continues to produce the goods provided until the level of MC equals MR is reached. In that case, the company or producer will earn profits above the average in a short period of time.

b. Maximizing Long Term Profits

The existence of profits that exceed the average limit will cause the development of producers in the market. So that every producer in the market must be prepared to face less demand at various price levels. So, the profit that will be obtained also decreases to normal levels.

There Are Inefficiencies in Monopolistic Competition Markets

There are two reasons why inefficiencies arise in this monopolistic competition market. The first is because the selling price is greater than the marginal cost. Then the second is excessive capacity. If the company experiences a minimum loss, then 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 producers who are still there will increase. With the exit of these producers from the market, it will continue until the producers get a normal profit.

In this situation, there will be no more producers entering the market and no more companies leaving the market. That is what is called the long-run equilibrium of the company in a monopolistic competition market.

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Advantages and Disadvantages of Monopolistic Competition

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

The advantages of Monopolistic Competition Market are:

a. The number of companies in the market will provide distinct advantages for consumers in choosing the best goods or products for them.
b. There is freedom to go in and out for the 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 product to be purchased and can make each consumer more selective about the product to be chosen.
d. This market is relatively easy to find because most of our daily needs are in a monopolistic market.

Disadvantages of a Monopolistic Market

a. 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 more quickly.
b. It takes a large enough capital to be able 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 impact on product prices that must be paid by consumers.

Monopoly Market Factors

The following are several factors that cause 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. To trigger a monopoly economy, namely the existence of a powerful company, be it all of the raw materials that are available or most of them.

2. Economies of Scale

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

This can have an impact on reducing product prices if production is higher and at high production levels as well. Then for the price to be made as low as possible, so that companies that have just joined will not be able to enter and compete with other companies that have developed first. That is what 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. For example regarding copyright regulations and also patents.

Copyrights and patents are useful legal guarantees to prevent plagiarism. An effort to develop a type of technology to be able to create new products will provide benefits for the company itself. So that the technology is prohibited and the government gives sanctions or penalties to companies that commit 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 price set by each company is also different. There is no standard that can determine that the price of these products must be the same or uniform.

In addition, each company has the power to influence the market using its products. However, they cannot influence the overall market price or the prices set by their competitors. The other differences that we can see from all the examples of products from the manufacturers above are regarding the cigarette mix, 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

Another example of monopolistic competition in Indonesia is the Honda or Yamaha motorcycle factory. Where Honda’s motorbikes are always considered more economical compared to other motorcycle brands. Meanwhile, the Yamaha output motorbike is considered to have superior power compared to other motorbikes.

This is an example of a monopolistic competition market. Where the two brands both produce motorcycles. However, both have quite different characteristics.

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

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