5 Pros and Cons of Monopolistic Competition

Monopolistic competition is an economic concept and practice wherein a market doesn’t have only one manufacturer, wholesaler, retailer or supplier. In effect, every industry or type of product and service should have multiple enterprises and consumers should get to choose from them. The eventual objective of monopolistic competition is to avoid a monopoly. This monopoly could be of a state owned enterprise, privately owned or publicly traded business. While monopolistic competition is in practice in almost all the countries around the world, there is some debate as to whether or not it is the best we can have.

List of Pros of Monopolistic Competition

1. More Competition.
Monopolistic competition allows new businesses to venture into most industries without any systematic opposition or challenge. There are lucid laws in place allowing enterprises to be registered, for the business to operate, to sell its products or services and to churn a profit. There are some industries that are exempted where only state owned enterprises or a few companies will be able to venture into. These are usually sensitive niches that have more to do with the larger welfare of a country and its people than the general consumer market. As more businesses find a foothold, there is more competition.

2. Better for Consumers.
If there was only one company selling a cluster of products then the consumers wouldn’t have any option. Monopolistic competition allows more companies to coexist and offer similar products or maybe different products serving the same need and purpose. Customers or consumers can thus choose the product or service they like.

3. Better Products/Services.
Every company will try to secure a formidable market share and would want to hold on to it. In an attempt to do this, a company must keep delivering quality products and satiating service. The consumers get the best value for their money. Only the best companies get to stay around over the years. It is an overall win-win for any and sundry.

List of Cons of Monopolistic Competition

1. Battle of Perception.
In a fight to establish a particular product or service as superior, companies resort to advertising and various types of marketing or promotions. The focus shifts from product or service to grabbing attention. Often, the actual product and service doesn’t become the crux of the debate but the promotions and hence perception. The battle of perception is often clouded in how one presents a product or service and not necessarily what exactly is being delivered.

2. Predatory Pricing & Other Strategies.
There are many ways to kill any competition, one example being predatory pricing. Monopolistic competition doesn’t exactly do anything against such practices, although there are fair trading rules in most countries.