Answer to Question #208533 in Economics for sinentlahla

Question

the market for fast food chicken restaurants like KFC, Chicken Licken and nandos , are said to be within the category of monopolistic competition. Examine this market for characteristics and behaviours that link them to this types of market structure

Answer 1

Monopolistic competition is a type of competition that can arise with many sellers who sell differentiated products in a market with free entry and exit for new producers.

Typical examples of markets with the monopolistic competition are catering, jewelry, and service markets.

In more detail, the signs of monopolistic competition can be formulated as follows:

1) the market consists of a relatively large number of sellers, each of whom has a small market share;

2) the goods of each seller are an imperfect substitute for goods of other firms;

3) when setting prices, sellers do not take into account the reaction of competitors;

4) the market has no barriers to entry and exit.

Monopoly competition has the characteristics of both monopoly and perfect competition. In the market of monopolistic competition, each firm controls the price of its product, which is a sign of a monopoly, but the presence of a significant number of sellers, the absence of barriers, and the lack of consideration of competitors' reactions is a sign of perfect competition.