Monopolistic Competitive Companies
| | Size: | ||
| Features: | Small Company (i.e. Clif Bar & Company | Medium Company (i.e. Lego) | Large Company (i.e. Sears) |
| Differentiated products | YES | YES | YES |
| Control over price | Some | Some | Some |
| Mass advertising | NO | YES | YES |
| Brand name goods | YES | YES | YES |
| Extensive Knowledge | Fairly Complete | Fairly Complete | Fairly Complete |
| Free Entry and Exit | YES | YES | YES |
Economic Definition: A monopolistic competitive company will achieve maximum profit where the difference between total revenue and total cost is the greatest. This is also where marginal revenue equals marginal cost (MR = MC), providing the maximum profit output (Q1). The price at this output level will be higher than MC (P > MC), preventing productive and allocative efficiency from being attained.
Practical Definition: A monopolistic competitive company will be one of many smaller companies that offer differentiated products (physically or perceptually) with minimal control over the price obtained. There are minimum barriers to entry (i.e. government or regulatory controls) into the market and they will have fairly complete knowledge of the costs and prices for competing products. Smaller companies may have minimal mass advertising, whereas larger companies may be able to afford mass advertising.
Hey Glenn, well done on keeping the definition brief - I had a tough time doing that.
ReplyDeleteIs Lego a medium sized company? I never thougth about it but you're probably right. I've always been amazed at how expensive their products sell for. I wonder if their costs of production are high, or they just have such a high demand that they can charge a higher price? WHen you pick up a lego brick it's definitley heavier and more solid than the many knock off bricks out there, so I would imagine they use more expensive plastics to keep the product at high quality standards.
Thanks Mike. Lego definitely makes a superior product, which would explain some of the cost, but I think they have the brand identity that people know. Similar to how most people call all facial tissue "Kleenex", people don't use the term building blocks, but simply call them LEGO. Mega Brands also manufactures and sells "construction toys" under the Mega Bloks brand name (better known for their toddler age toys). They successfully defended a lawsuit in Europe from LEGO on patent infringement so it will be interesting to see if they can become a household name like LEGO?
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