Introduction:
Monopolistic competition:
Is a type of imperfect competition such that many producers sell
products that are differentiated from one another (e.g. by branding or
quality) and hence are not perfect substitutes[1].
So the model of monopolistic competition describes a common market structure in which firms have many competitors, but each one sells a slightly different product.
There
are many small companies under monopolistic competition conditions,
including high-level, independently owned and operated stores and
restaurants. In the case of restaurants, each one offers something
different and possesses an element of exclusivity, but all are
essentially competing for the same customers.
Case Study: Restaurants
In monopolistic competition, the market structure in which Restaurants compete shapes how they maximize profits. With monopolistic competition they have the freedom of monopoly power and the constraints of perfect competition.
Restaurants
compete in monopolistically competitive markets. On the competitive
side, there are many firms and relatively easy entry and exit. However,
these firms have something unique that gives them some monopoly power
over their customers. Restaurants in which pricier establishments
compete has its menu “norms” while cheaper restaurants have theirs. For
both, though, the menu facilitates competition[2].
Characteristics of the industry[3]:
· Large Number of Buyers and Sellers: where there are many of Restaurants, and more than 2 million customers
· Free Entry and Exit of Firms: Restaurants can enter or exit freely.
· Product Differentiation:
· Selling Cost: Restaurants try to promote its product by different types of expenditures through Advertisement.
· Lack of Perfect Knowledge:
· Less
Mobility More Elastic Demand: Under monopolistic competition, demand
curve is more elastic. In order to sell more, the Restaurants must
reduce its price.
Restaurants industry Statistics:
The
restaurant industry in Qatar is booming. According to the February
newsletter edition published by the Ministry of Economy and Commerce
(MEC) on local trade activities, 222 commercial registrations were
issued for new restaurants and fast food outlets, 59 cafes, 55 bakeries
and sweet shops.
According
to the following diagram, about 25% of Qatari household expenditure is
allocated to spend on foods from restaurants in Qatar, so there is great
competition between local and foreigners restaurants to attract Qatari
citizens, and often there is a distinctive price and provide different
meals to suit consumer preferences.
This section should explain whether the allocative and productivity efficiency could be achieved in this market
Characteristics of the monopolistic market:
1. price maker
2. profit maximization
3. one seller and producer
4. higher barriers to entry
5. absolute product differentiation
Productive and Allocative Efficiency
Allocative efficiency occurs when consumers pay a market price that reflects the private marginal cost of
production. The condition for allocative efficiency for a firm is to
produce an output where marginal cost, MC, just equals price, P. (htt5)
Productive
efficiency occurs when a firm is combining resources in such a way as
to produce a given output at the lowest possible average total cost
Costs will be minimized at the lowest point on a firm's short run
average total cost curve. (htt4)
To identify which output a firm would produce, and how efficient it is, we need to combine data on both costs and revenue. (htt3)
We can assume that most real firms face a downward sloping demand (AR) curve, and MR falls at twice the rate.
Diagrammatically, productive efficiency occurs where ATC is at its lowest, and is equal to MC. (htt2)
Allocative Efficiency
Monopolistic competitive markets are never efficient in any economic sense of the term.
Because a good is always priced higher than its marginal cost, a monopolistically competitive market can never achieve productive or allocative efficiency. Suppliers in monopolistically competitive firms will produce below their capacity.
Another
disadvantage is the advertising expenses incurred by producers working
in the context of monopoly competition are unnecessary extravagance
because the final outcome will be transferred to consumers by raising
the prices of various commodities and thus consumers will not benefit
from any possibility to reduce prices.
CONCLUSION
Basically,
Monopolistic competition Is a type of imperfect competition, such that
many producers sell products that are differentiated from one another. In monopolistic competition, the market
structure in which Restaurants compete shapes how they maximize
profits. Qatar located Restaurants have monopoly power that lets it price and place products however it wants because its unique identity generates consumer loyalty. There is a highly competition between Qatari Restaurants provide compete prices for Qataris customers. furthermore, some characteristics
of the industry is that they have Large Number of Buyers and Sellers,
Free Entry and Exit of Firms, Product Differentiation, Selling Cost,
Lack of Perfect Knowledge and Less Mobility More Elastic Demand. However, the
restaurant industry in Qatar is booming. According to the February
newsletter edition published by the Ministry of Economy and Commerce
(MEC) on local trade activities, 222 commercial registrations were
issued for new restaurants and fast food outlets, 59 cafes, 55 bakeries
and sweet shops.
Sources:
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