Monopolistic Competition

As we know, COLGATE is the popular toothpaste brand in the world.

Do you know the market structure for the toothpaste industry falls under monopolistic competition?

Because:
(1)  it characterized by a relatively large number of sellers
(2)  has differentiated products and has many close substitutes
(3)  it is freedom to entry and exit from the industry

With numerous firms in an industry, there are many brands of toothpaste in the market. For example: DARLIE, SENSODYNE, AQUAFRESH, CREST and others. Each of the firms produce similar but slightly different product. The toothpaste industry turns out variation of product which is differentiated by texture, flavour, services, promotion, product attribute, brand names and packaging.

Since there are many firms in an monopolistic competition industry, firms will utitlise promotional tools such as advertisments to encourage and influence people to purchase their product. For example, COLGATE company are doing some promotion to attract more customer to seek the maximize profit. They are trying to create some clever advertisements for example, COLGATE has targeting in children and adult and put in effort to promote better children’s   oral hygiene and dental care.

The COLGATE is only the small part of total industry in monopolistic competition. Therefore, COLGATE brand firm has limited power to control over the market price of total industry. If the price of toothpaste rise, will results consumers switching to other brand. Although in monopolistic competition, there is price maker but the Colgate firm cannot set the price too higher, because other people can’t afford the cost of goods with higher price.

  

     

Unlike monopolists and oligopolists, firms in monopolistic can’t maintain excess profit because consumers still have many substitutes to choose.

**Due to easy entry and exit from the industry, so the firms make only normal profit in long-run.

**To understand the characteristic of monopolistic competition more clearly, 

you can watch this following video:

Resources: http://top7.com/top/1344/Toothpaste-Brands

                       https://www.youtube.com/watch?v=T3F1Vt3IyNc

Written by: Joanne Teng Zhen Hui