Part of The Student Room Group

  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Price descrimination and monopolistic competition

Extracts from this document...

Introduction

Monopolistic competition: History: Developed by the American economist Edward Chamberlin (1899-1967). Explanation: A monopolistic competitive market is open with many competing firms where each firm has a little bit of market power -> firms have some ability to set their own prices since products differ slightly from each other. Characteristics of a monopolistic competition: -The industry is made up of a fairly large number of firms. -Consists of small firms, where each one has a small share of the market. -Each firm's product can be told apart from the other firms product by the customers: e.g.: Different brand name, colour, package, design, service, (main difference from a Perfect competition). -examples: Mechanics, plumbers, jewellers, hair dressers, restaurants... ...read more.

Middle

That is why firms that accumulate in one area often try to distinguish themselves from one another through different offers, such as "open 24/7" All firms, no matter what the result of the short run period was, will end up in the position of normal profits in the long run period. This means that each firm is covering exactly it's costs. (see figure 10.4). This is another point where a monopolistic competition differs from a perfect competition. Price Discrimination 1) It is a pricing policy that firms adopt to further increase then profits 2) It exists when a firm sells the same product at two or more different prices in two or more markets provided that price difference DO NOT reflects products or provision costs differences Type of price discrimination 1. ...read more.

Conclusion

It does not, however mean that everyone is equal 3. If a market is at PARETO optimality, it is said to be socially efficient. Social efficiency exists when community surplus in maximized. 4. Market Failure occurs when community surplus is not maximized 5. When markets fail, governments are often expected to intervene in order to eliminate market failure and move towards the optimal allocation of resources Types of Market Failure: 1. Imperfect Competition a. Monopoly b. Monopolistic Competition c. Oligopoly 2. Lack of public goods (parks, lightening...) 3. Undersupply of merit goods (education, health services...) 4. Oversupply of demerit goods ("sin" product: drugs, cigarettes...) 5. Existence of externalities externality (pollution) +: of production Of consummation -: of production (pollution) Of consummation (smoking cigarette) 6. Immobility of factors of production 7. Problems of information 8. Creation of inequality 9. Short-termism ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our International Baccalaureate Economics section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

or


Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related International Baccalaureate Economics essays

  1. The structure of the EU budget and its allocation

    � Emergency Aid Reserve EUR 249 million both in commitment and payment appropriations. � Provisional appropriations of EUR 537 million in commitment appropriations and EUR 410 million in payment appropriations. The above table shows the full implementation of all available appropriations including amounts carried over from 2009 into 2010 and assigned revenue.

  2. Has the Time Come to Legalize Drugs?

    the illegal state of these drugs aids the dealers, harming the government. Figure 2 Price elasticity of demand of a good is a measure of the extent to which the quantity demanded of a good changes when its price changes.

  1. Markets and Price Determination

    The conditions of demand are 'all other things' that are assumed equal in the law of demand. Conditions of demand include: Condition of demand Increase in demand Decrease in demand Taste and fashion (e.g. clothes, music) Good comes into fashion or enjoys successful advertising to boost demand.

  2. Why did the UK did not join the EC until 1973

    Pro-Europe he certainly was but in Europe he indeed was not. Churchill believed that Europe should be built on the American federalist model but that Britain could not be part of it. His country's position with regards to Europe was made clear in an article published in the Saturday Evening

  1. Discuss and evaluate the proposition that perfect competition is a more efficient market structure ...

    This also means that a lot of the consumer surplus is being transferred to producer surplus. This harms all consumers. If a consumer must pay higher prices for the same good in a monopoly market than in a perfectly competitive one, their disposable income will be decreasing.

  2. Price discrimination

    Sellers in telecommunications, railways, highways, water, power service providers and fuels charge prices that vary according to consumer category. Third degree price discrimination applies when sellers? prices vary according to the market where the output gets sold. As with the second type, the information sellers need is relatively lighter as compared to the first type.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work