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= =  //Would you go to Starbucks, Coffeebean, or Pasucci? Would you go to Familymart, Ministop, of Seveneleven? Would you go to Kimbabchungook, Kimganeh, or Kimbabnara? How do you make these choices as a consumer? What causes you to choose Starbucks over Coffeebean or Kimbabnara over Kimbabchungook? In this page, we will explore the concept of monopolistic competition from two perspectives; the seller and the buyer. What does the seller emphasize to differentiate their products from other firms? How do they react to neighboring firms that raise their prices. In the real world, does neighboring stores really effect the price of a certain store? On the other side, we will explore what the buyer expects from these stores and what causes them to change their decisions.//

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 Monopolistic Competition is basically when there are several sellers who produce similar, products. However, these products are slightly differentiated by the idea of color, size, atmosphere, taste, etc. In this market structure, each producer has the freedom to set the price and quantity without effecting the entire commercial market. It probably the most common market form. Most markets in the society usually fall under this market form ranging from restaurants to clothing ships, to even cereal.
 * First an Explanation**

1. Large number of buyers and sellers Large number of firms show that each firm is small. Therefore, each firm has the ability to control the price.
 * Several of the biggest characteristics of Monopolistic Competition are** :

2. Non-price difference (differentiation). Products not perfect substitutes The power of advertisement if stressed in monopolistically competitive markets. Non price actions are necessary to attract consumers. Product development = technology

3. Buyers and sellers have knowledge of the market

4. Does to produce optimum quantity of output = no economies of scale The profit in a monopolistic competition is intent on the same procedure as any other market; where the marginal revenue intersects the marginal cost. In an example of a restaurant, it should welcome customers if the additional marginal revenue is more than the additional marginal cost of the last meal.

5. Monopolistic Demand is Down Sloping This is because the preference of a certain good is differentiated depending on each product. But there are close substitutes available, the demand is very elastic. Although these goods are not perfect substitutes, if there are 10 different kinds of gum, it is highly likely that consumers prefer one gum over another if there are big price changes. Therefore, in the graph, the demand in monopolistically competitive has to be more horizontal than the graph in a monopolistic market.

Monopolistic competition is different from perfect competition because production isn’t taken place at the lowest possible cost. Therefore, in monopolistic competition, firms are often left with excess production capacity.

Moreover, one important factor of the Monopolistic Competition is that consumers hold the power. In a monopoly, producers have the power to control the price and quantity. In a monopolistic competition however, it is pivotal for the producers to keep their good a “normal good” instead of an “inferior good”, meaning the preference for that particular product is strong that people would continue buying it even when the price rises.

The one and biggest goal of firms in monopolistically competitive firms is to prove to the consumers that their product is better than that of other firms.





During Christmas eve, I called up few of my good friends to go caroling around Jeongja street. We put on Santa hats, green and red clothing and papers of the most popular carols. As we jingled around the streets, this one women in front of a restaurant named 'E' called us over. We naturally thought we were disrupting business or were in some kind of trouble. However, instead, she asked us to sing in front of their store. It make sense. Its Christmas eve. There are couples everywhere. These couples are hungry. These couples are looking for a place to eat. To attract more people, the women (who probably was the manager or something) used a commonly used technique called advertising to make her restaurant seem a little bit more special to customers.

=__ **Pros and Cons of Advertisement ** __=



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To have a better understanding of monopolistic competition, lets use a counter example - monopoly. I love cookie is the only store in jeongja that sells American imports. Many people who live in this area rely on this one store for their redbull, trident gum, or even nutella. Apart from the fact that the store directly imports goods from America, the store is a price maker creating a high barrier for other firms to enter the market. However, as you have seen, out of all the shops in this area, the number of monopolistically competitive firms outnumber the number of different kinds of monopolies.

PERSONALLY, all my American chips and Red Bull comes from I Love Cookie. Its the only place I can purchase such goods. My demand for these goods are high, but the supply is limited.







**Unlike monopolistic competition that can adjust its own prices, family marts are in a perfectly competitive market, so they have to take the market price or they would not be able to sell (because people would go elsewhere, since the products are the same). Understanding the concept of Perfect Competition will further your knowledge of the Monopolistically Competitive market and its relation in our society.**

 1. Each seller and buyer has no control over price. 2. Perfect Knowledge. 3. Homogeneous Products. 4. Firms freely enter and freely exit the market.

The first characteristic simply means that, in a competitive market, the market and the firms are all price takers according to the supply and demand curves. One person, or one firm does not have any power over price control. They are both "Price takers". The second characteristic means that in a theoretical model of the competitive market, economists assume perfect knowledge. Perfect knowledge means that all producers and consumers are familiar with what is happening in the market. (Example: which super market sells chocolate pies for lowest price) Based on this assumption, economists can consider the supply and demand curve of the idealistic model to be right. The third characteristic means that the in the same market, many different firms compete with homogeneous products. The meaning of this characteristic is quite straight forward. Fourth characteristic is very important as this strongly alters the firms in the long run in a perfectly competitive market. It means that firms are free to come in or exit the market. (Example: If some firm is making profit off of certain product, other firms will enter the market of same product to earn profit.)

So if you are thinking about opening an Italian Restaurant for a living, you now know which factors to keep in mind. You have learned through this short and concise lesson how to differentiate your products from other firm's products. The Monopolistically Competitive Market is a harsh, scary place. To enter that world, remember to look at the situation from the consumers view. At the end, the consumers are the ones that make or break your business. Also, keep in mind what Monopoly and Perfectly Competitive markets are as well for a thorough understanding of which market economy you are jumping into. Remember, put your feet in the shoes of the __**consumer.**__