Monogopoly Competition: The Development of a Theory

By Florey, Randall L. | Southern Business Review, Fall 2004 | Go to article overview

Monogopoly Competition: The Development of a Theory


Florey, Randall L., Southern Business Review


In economic theory, demand curves aggregate the price-quantity relation of individual buyers in a market. Aggregation of demand is an accurate representation when many are firms in competition; however, marketers, in practice, segment the aggregate market into smaller homogeneous market segments in order to develop a better marketing mix to satisfy the needs of customers within the segment. In addition, marketers develop product differentiation and positioning strategies focused on specific segments, target markets, in order to compete on a non-price basis. Firms produce products for each segment to satisfy the unique needs of segments within the market. Also, oligopolies are created by competitive concentration within a market by a few firms using non-price competition to compete within a relative price range in multiple market segments. Smaller firms follow the dominant firms within a relative price range, which allows for informal collusion in the oligopolies formed across multiple segments. In order to introduce, define, and understand a monogopoly, it is necessary to examine the intra- and inter-segment competitive behavior within and between market segments.

Product Differentiation and Monopolistic Competition

Current economic models do not accurately depict market economies consisting of large firms that dominate the market in size, financial resources, and production capabilities and, then, distribute and promote multiple differentiated products within a market. This difference results from marketers focusing their company's efforts on non-price competition to differentiate their product, using either tangible or intangible differences (Kotler, 2000, Kalakota & Whinston, 2001). Chamberlin, who originated the theory of monopolistic competition, understood the importance of non-price competition when he said,

. . . when products are differentiated, buyers are given a basis for preference, and will, therefore, be paired with sellers, not in a random fashion (as under pure competition), but according to these preferences . . . so that the whole is not a single large market of many sellers, but a network of related markets, one for each seller . . . Under monopolistic competition, however, his market being separate to a degree from those of his rivals, his sales are limited and defined by three new factors: (1) his price, (2) the nature of his product, and (3) his advertising outlays (1958: 71).

Breit and Ransom elaborate with

[t]he basis for differentiation is broad indeed, for it is not important that differences in products be real, they may simply be imagined by the consumer. All that matters is that consumers behave as if the products are not alike. If they judge the two as being different, they will presumably pay some additional sum to buy the one they like most, regardless of the actual characteristics of the goods (1971: 60).

This broad concept of differentiation was recognized by Chamberlin when he stated,

[t]he volume of his sales depends in part upon the manner in which his product differs from that of his competitors.... Its "variation" may refer to an alteration in the quality of the product itself-technical changes, a new design, or better materials; it may mean a new package or container; it may mean more prompt or courteous service, a different way of doing business, or perhaps a different location (1958: 71).

The distinction placed on the product is intended to give the product a unique appeal that will satisfy the needs of the target market better than other competing products, which are attempting to satisfy the needs of the same target market (Best, 2000, Kalakota & Whinston, 2001). Marketers position their products, which is

the way the product is defined by consumers on important attributes, the place where the product occupies a consumer's mind relative to competing products (Marketing Segmentation, 2001: 1).

Positioning is unique, for it is based on what consumers perceive the attributes to be and not necessarily the actual attributes (Marketing Segmentation, 2001; Strategic Marketing, 2001; Taha, 2000).

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