![]() ![]() The first theoretical analysis of monopolistic competition was simultaneously developed by two economists working independently of one another: the British economist Joan Robinson (who introduced the concept in her 1933 book Economics of Imperfect Competition) and the American economist Edward Hastings Chamberlin (whose ideas on the subject were published in his Theory of Monopolistic Competition, published that same year). Large companies dominated many industries in Europe and the United States, and governments began intervening to regulate and break up monopolies, with the intent of promoting increased competition. It had become obvious by the late nineteenth century that this was not necessarily true. But Smith, Ricardo, and other so-called classical economists believed that, in the absence of government intervention, an economy would naturally gravitate toward conditions of perfect competition. The most prominent early economists, Adam Smith and David Ricardo, recognized this fact and made it the foundation of their theories. When Did It BeginĬompetition has always been the engine of any market system. There is no precise dividing line between these two most common market structures, but monopolistic competition is closer to perfect competition, and oligopoly is closer to monopoly. Most industries have the characteristics of monopolistic competition or oligopoly, a market type in which a few large companies dominate and therefore have greater power to control prices and market conditions. In the real world monopolies are rare, and perfect competition is probably nonexistent. Perfect competition describes a market composed of numerous sellers all offering an identical product, so that none of the sellers has the ability to control prices. A monopoly exists when a single company is the only seller of a good or service and therefore has the power to raise prices, cut production, or otherwise shape the market for its own benefit. Monopolistic competition combines the features of two opposing theoretical concepts: monopoly and perfect competition. businesses subject to conditions of monopolistic competition are clothing stores, restaurants, wine merchants, convenience stores, and other retailers in large cities. Each firm has some amount of control over prices and market conditions even though there is a high level of competition among them. Monopolistic competition describes a market structure (a market is any place or system in which buyers and sellers of products come together) composed of numerous relatively small businesses, each of which sells similar but not identical products.
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