Unit 4 Monopolistic competition

1. Theory issues revising

Exercise 56. Read the words from the texts and identify the words you already know from the Economics course.

Vocabulary

market share	доля рынка (удельный вес компании в общем объеме рыночных продаж)
collusion	сговор, тайное соглашение
price to bring a price to bring down, cut, lower, mark down, reduce, roll back, slash, undercut prices to fix, set prices to hike, increase, mark up, raise prices to hold down, keep down price to maintain prices	цена продавать по цене... понижать/снижать цены установить цены повышать цены не допускать роста цен удерживать цены на одном уровне
pricing policy	ценовая политика, политика ценообразования, политика цен (совокупность мероприятий и стратегий, которые использует предприятие при установлении цен на реализуемую продукцию или оказываемые услуги)
sales	товарооборот, объем продаж (реализованные товары в денежном выражении; рассчитывается путем умножения количества проданных за определенный период товаров на цену товара)
perceptible	заметный, ощутимый
trigger	инициировать, дать начало
to distinguish	различить
sustain	способствовать
postpone	откладывать; отсрочивать
outcome	исход, итог, последствие, результат
benefit	= profit
wide range	широкий диапазон
juggle	зд. фокусироваться
seek	добиваться, стремиться
supplement	дополнять,
at best	в лучшем случае
forecast	прогноз
by trial and error	путем проб и ошибок

Exercise 57. Read the following text. Answer the study questions.

Characteristics of monopolistic competition

Monopolistic competition is characterized by a fairly large number of firms and involves:

1. Small market shares. Each firm has a comparatively small percentage of the total market and consequently has limited control over market price.

2. No collusion. The presence of a relatively large number of firms ensures that collusion by a group of firms to restrict output and set prices is unlikely.

3. Independent action. With numerous firms in an industry, there is no feeling of independence among them; each firm can determine its own pricing policy without considering the possible reaction of rival firms. A single firm may realize a modest increase in sales by cutting its price, but the effect of that action on competitors` sales will be nearly imperceptible and will probably trigger no response.

In contrast to perfect competition, in which there is a standardized product, monopolistic competition is distinguished by product differentiation. Profit-realizing firm need not stand by and watch new competitors eliminate its profit by imitating its product, matching its customer service and copying its advertising. Each firm has a product that is distinguishable in some way from those of the other producers. So the firm can attempt to stay ahead of competitors and sustain its profit though further product differentiation and better advertising. By developing or improving its product, it may be able to postpone, at least for a while, the outcome.

The product differentiation that accompanies the drive to maintain economic profit in monopolistic competition is a benefit for society. If a product is differentiated, then at any time the consumer will be offered a wide range of types, styles, brands, and quality gradation of that product. Compared with perfect competition, this provides an advantage to the consumer. The range of choice is widened, and producers more fully meet the wide variation in consumer tastes.

The monopolistically competitive firm juggles three factors – price, product and advertising – in seeking maximum profit. It must determine what variety of product, selling at what price, and supplemented by what level of advertising will result in the greatest profit. At best we can say that each possible combination of price, product, and advertising poses a different demand and cost (production cost and advertising cost) situation for the firm to get maximum profit. In practice, this optimal combination can not be readily forecast but must be found by trial and error.

Study questions:

1. Why does the product improvement promoted by monopolistic competition expand the choice?

2. What does successful product improvement obligate rivals to do?

3. Explain, what product differentiation may involve.

4. «Competition in quality and service may be just as effective as price competition in giving buyers more for their money» Do you agree? Why?

5. Why do monopolistically competitive firms frequently prefer non price competition to price competition?

6. How do you understand «product differentiation»? Give examples of product differentiation in the Russian market. What types of product differentiation do you know?

7. Is there an element of monopolism in product differentiation?

Exercise 58. Choose the products that can be easily differentiated? Justify your answer. Use opinion patterns studied before:

Soft drinks, economic textbooks, breakfast cereals, red roses, beer, melons, light bulbs, cigarettes, batteries …..