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Updated on June 08, 2023

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Table of contents, what is monopolistic competition.

Monopolistic competition is a market structure where there are many small firms that produce differentiated products. Unlike perfect competition, each firm has some market power due to product differentiation, which allows them to charge slightly higher prices than their competitors .

However, because there are many firms producing similar but not identical products, consumers have a range of choices and can switch to another product if the price of one becomes too high.

As a result, firms in a monopolistically competitive market must engage in non-price competition, such as advertising and product differentiation, to attract customers.

Characteristics of Monopolistic Competition

Monopolistic competition is characterized by several key features:

Large Number of Small Firms . There are many firms operating in the market, none of which dominates the market.

Differentiated Products . Each firm produces a product that is distinct from its competitors' products, either through quality, design, or branding.

Some Market Power . Each firm has some control over the price of its product due to product differentiation, but this control is limited because there are many substitutes available to consumers.

Non-price Competition . Firms in a monopolistically competitive market compete using advertising, product development, and other marketing strategies to attract customers rather than relying on lower prices.

These characteristics create a market structure that combines elements of both monopoly and perfect competition, resulting in a market where firms have some market power, but not enough to eliminate competition altogether.

Monopolistic Competition

Examples of Monopolistic Competition

Monopolistic competition can be observed in a variety of industries, but here are some examples:

Restaurants

These are a good example of monopolistically competitive markets because they offer different types of cuisine, ambiance, and price range, which creates a range of options for consumers.

This differentiation allows each restaurant to have some control over its pricing strategy, but not enough to eliminate competition.

Clothing companies differentiate their products through design, quality, and brand image. This differentiation creates a range of options for consumers, giving each clothing company some market power over its pricing strategy.

Consumers often choose clothing based on brand image, style, and quality, rather than just the price.

Electronics

Companies producing electronics such as smartphones, laptops, and televisions are also good examples of monopolistically competitive markets. These companies differentiate their products through technology, features, and design.

For example, Apple's iPhone and Samsung's Galaxy phones have different designs, features, and operating systems, which create a range of options for consumers.

These industries have many firms competing for market share and offering slightly different products, making them good examples of monopolistically competitive markets.

Benefits of Monopolistic Competition

Monopolistic competition offers several benefits to both consumers and firms:

Consumer Choice

In a monopolistically competitive market, consumers have a range of options to choose from, leading to greater consumer satisfaction and utility.

Product Differentiation

Firms in a monopolistically competitive market differentiate their products, which encourages innovation and leads to a greater variety of products for consumers.

The need for product differentiation in a monopolistically competitive market drives firms to innovate and create new products, technologies, and marketing strategies to attract consumers.

This can lead to technological advancements and greater efficiency in the market.

Overall, monopolistic competition encourages competition, innovation, and variety, benefiting both consumers and firms in the market.

Challenges of Monopolistic Competition

While monopolistic competition offers some benefits, it also presents several challenges:

Barriers to Entry

The product differentiation in monopolistically competitive markets can make it difficult for new firms to enter the market and compete with established firms. This can lead to reduced competition and market inefficiencies.

Higher Prices for Consumers

Firms in a monopolistically competitive market have some market power, which allows them to charge slightly higher prices than in a perfectly competitive market.

This can lead to higher prices for consumers and reduced consumer surplus.

Inefficient Allocation of Resources

Monopolistic competition can lead to an inefficient allocation of resources, as firms may spend resources on advertising and product differentiation rather than on improving their production process.

This can result in less efficient use of resources and higher costs for consumers.

Applications of Monopolistic Competition

Monopolistic competition has several practical applications in business and government policies:

Business Strategy and Marketing

Firms in a monopolistically competitive market must focus on product differentiation and non-price competition to attract customers.

This can include investing in research and development, creating unique brand identities, and developing marketing campaigns to promote their products.

Government Regulation and Antitrust Policies

Because monopolistic competition can lead to market inefficiencies and reduced competition, governments may regulate these markets to promote fair competition and protect consumers.

Antitrust laws may be used to prevent monopolistic practices, such as price-fixing, collusion, or abuse of market power.

Understanding the characteristics and implications of monopolistic competition can help businesses make strategic decisions and help governments develop effective policies to promote competition and protect consumers.

Comparison of Monopolistic Competition with Other Market Structures

Monopolistic competition is just one of several market structures, each with its unique features:

  • Perfect Competition

In a perfectly competitive market , many small firms sell identical products with no market power. Prices are determined by supply and demand , and there are no barriers to entry or exit.

Unlike the monopolistic competition, there is no product differentiation or non-price competition.

In a monopoly, there is only one firm in the market with complete market power. The firm can set prices and restrict output without facing competition. There are significant barriers to entry, making it difficult for new firms to enter the market.

Monopolistic competition sits between the extreme market structures of perfect competition and monopoly, with some market power due to product differentiation but still facing competition from other firms.

In an oligopoly, there are only a few firms in the market, each with a significant market share.

The firms may have some market power and engage in non-price competition, but there are significant barriers to entry and exit, making it difficult for new firms to enter the market.

Oligopoly is similar to monopolistic competition in that there are barriers to entry and a small number of firms, but with more market power and less product differentiation.

Comparison of Monopolistic Competition with Other Market Structures

Final Thoughts

Monopolistic competition is a market structure in which many small firms produce differentiated products, leading to some market power and non-price competition.

This market structure offers benefits such as consumer choice, product differentiation, and innovation but also presents challenges such as barriers to entry, higher prices for consumers, and inefficient allocation of resources.

It is important to note that monopolistic competition is just one of several market structures, each with unique features and implications. You can speak to a wealth management professional to learn more about monopolistic competition.

Monopolistic Competition FAQs

What is monopolistic competition, and how does it differ from perfect competition.

Monopolistic competition is a market structure where many small firms produce differentiated products, creating some market power but still facing competition. Unlike perfect competition, firms have some control over the price of their product due to product differentiation.

What are some examples of industries that demonstrate monopolistic competition?

Monopolistic competition can be observed in industries such as restaurants, clothing, and electronics, where firms differentiate their products through features, design, and branding to attract customers.

What are the benefits of monopolistic competition?

Monopolistic competition offers benefits such as consumer choice, product differentiation, and innovation, as firms must constantly develop new products, technologies, and marketing strategies to remain competitive.

What are the challenges of monopolistic competition?

The need for product differentiation can create barriers to entry, making it difficult for new firms to enter the market and compete with established firms. This can lead to market inefficiencies and higher prices for consumers. Furthermore, monopolistic competition can result in an inefficient allocation of resources.

How can businesses and policymakers navigate the challenges of monopolistic competition?

Understanding the characteristics, benefits, and challenges of monopolistic competition is essential for businesses and policymakers seeking to navigate this market structure effectively. This includes investing in research and development, creating unique brand identities, and developing marketing campaigns to promote their products. Governments may also regulate these markets to promote fair competition and protect consumers through antitrust laws.

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide , a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University , where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon , Nasdaq and Forbes .

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The U.S. Toothpaste Market: A Competitive Profile

This paper follows the path of seven studies (see below). However, it is different in one important respect: it also offers a benefit segmentation profile of the U.S. Toothpaste Market.

Porter associates high market share with cost leadership strategy which is based on the idea of competing on a price that is lower than that of the competition. However, customer-perceived quality—not low cost—should be the foundation of competitive strategy, because it is far more vital to long-term competitive position and profitability than any other factor. So, a superior alternative is to offer better quality vs. the competition.

In most consumer markets a business seeking market share leadership should try to serve the middle class by competing in the mid-price segment; and offering quality better than that of the competition: at a price somewhat higher, to signify an image of quality, and to ensure that the strategy is both profitable and sustainable in the long run.

Quality, however, is a complex concept that consumers generally find difficult to understand. So, they often use relative price, and a brand’s reputation as a symbol of quality.

In 2008 retail sales in the U.S. were $1.27 Billion for the Toothpaste Market. The market leader Crest had a market share of 34.7%, closely followed by Colgate with a share of 33.5%. We focused on the most popular pack-size—5.8-6.5oz—which had a 45.3% share. Employing Hierarchical Cluster Analysis, w e tested two hypotheses: (1) That a market leader is likely to compete in the mid-price segment, and (2) That the unit price of the market leader is likely to be somewhat higher than that of the nearest competition.

Employing U.S. retail sales data for 2008 and 2007, we found that, for both 2008 and 2007, the market leader in the U.S. Toothpaste market—Crest—was a member of the mid-price segment . Furthermore, the unit price of Crest was somewhat higher than that of Colgate, the runner-up, which was also a member of the mid-price segment.

Thus, the results fully supported both Hypothesis I and II—for 2008 and 2007.

We also found strong support for the idea, that relative price is a strategic variable, as we have hypothesized.

We discovered five benefit segments. The most fundamental result of this analysis is that it revealed an avalanche of various brands of toothpaste that not only whitened teeth, but were also helpful in preventing tooth decay, as before.

Finally, we discovered four strategic groups in the industry.

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Question: Monopolistic Competition Case Study (5 Points) 1. Read the case – Colgate India (see attached) 2. Using the information from the case, draw a graph showing Colgate’s current short-run toothpaste position in India. Completely label the graph and identify the resulting economic profit or loss.

Monopolistic Competition Case Study (5 Points)

1. Read the case – Colgate India (see attached)

2. Using the information from the case, draw a graph showing Colgate’s current short-run toothpaste position in India. Completely label the graph and identify the resulting economic profit or loss.

3. What is Colgate’s biggest concern regarding the toothpaste market in India? Be specific regarding the unique characteristics of the oral products market and how those characteristics could possibly impact Colgate’s market share.

________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

4. Draw a graph similar to the one in Part 2 above and show how the concern from Part 3 would impact Colgate’s profit or loss in the long run.

5. Imagine that you are the brand manager for Colgate, India and you have been asked to decide its future brand strategy. You have to specifically advise the CEO on whether the company should continue with a single-brand strategy in the increasingly competitive scenario or create different brands to fight the diverse competition more effectively. The key objective of Colgate is to defend and grow its market share rather than expand the market.

________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Colgate India Case Study

Vishwadeep Kuila (Brand Vectors - Chennai, India)

August 14, 2014

The brand Colgate has been one of the most trusted brands for decades. It is not only the older generation which grew up with Colgate, it is a first brand, even for the young, when it comes to oral care. The brand has faced bursts of competition from time to time and has fought back effectively to regain market share. In the 1960s and 1970s, Forhans was the challenger brand but it is completely forgotten today. Binaca, which later became Cibaca and finally got taken over by Colgate, was another challenger.

However, maybe because of the dominance of Colgate in India, this category has a fewer number of brands than, say, soaps. Given that neither soaps nor toothpaste have any technological barriers to entry and most entry barriers are created by marketing muscle, one would have expected to see many more brands in the fray.

Despite the strong brand and Colgate’s focus on oral care, in the late 1980s Close-Up changed the way toothpaste looked and felt in the mouth. High on freshness ingredients, the transparent look and the youth-centric approach gave Colgate some sleepless nights at the time. Close-Up gained a significant share of the market, forcing Colgate to launch a similar product and alter its strategies for some time. Colgate has regained its share since then, but Close-Up continues to hold a majority share in the gel category, with Colgate Gel remaining a distant second.

Unilever also attacked Colgate on the ‘healthy teeth’ platform with Pepsodent, thereby attacking on two fronts. Currently, despite Colgate accounting for about 55 per cent share of the toothpaste market, Pepsodent and Close-up are still sniping at its heels with intermittent attacks.

Oral products market in India

The oral products market in India consists of toothpaste, toothbrush, tooth-powder, and mouthwash. According to IRS data (2011), 66 per cent of Indian households use toothpaste, 24 per cent use toothpowder, and 18 per cent are non-dentifrice users.

The toothpaste market in India is estimated at Rs 6,000 crore, growing at 19 per cent y-o-y. There are different segments in the market like gel, sensitivity, whitening, and so on. India’s per capita consumption is reportedly almost one-fourth that of the US, and less than half that of other emerging markets. Toothpaste has a high penetration of around 78 per cent in urban India. Colgate is the overall market leader, with a share of 55.9 per cent.

The broad segments are:

Germ and Tooth Decay: This is the biggest segment; Colgate gets its major share from this segment. Of late, Pepsodent has begun attacking this segment with its Germicheck variant. As per a recent media report, more than half of Colgate’s overall share comes from Colgate Strong Teeth, which competes in this segment (and the focus of Pepsodent’s Ad).

Sensitivity: This is the fastest growing segment, already at Rs 950 crore, and is growing at 30-40 per cent a year. GSK’s Sensodyne has a slight lead

Gel: The second biggest segment (Rs 1,500 crore) and the only one where Colgate significantly trails the leader Close-Up (60 per cent market share)

Gum: Another upcoming segment where GSK’s Paradontax is making much progress.

Whitening: A segment which has seen renewed emphasis from Colgate with Colgate Visible White

Multi-Benefits: Another segment dominated by Colgate with its Total variant. This segment enjoyed great significance at one point in the US and was responsible for Colgate becoming No.1 in the US between 1998-2007 before P&G’s Crest reclaimed the lead

Current Situation

Besides the direct attack from Pepsodent, entry of a large international player like Oral B has further intensified competition in the general toothpaste category. Brands such as Sensodyne and Paradontax have come in with aggressive marketing strategies and have created small sub-categories for themselves, possibly at the cost of Colgate. Colgate responded with Colgate Sensitive but Sensodyne still has a larger share of the sensitive toothpaste market.

Colgate has over the years tried to fight the sub-segments through a sub-branding strategy and has launched sub-brands such as Colgate Gel, Colgate Sensitive, Colgate Herbal, Colgate Active Salt and Colgate Total. It is clear that the other players, besides Unilever and P&G, are not very keen to take Colgate head-on in its main product line. Hence, they have started carving smaller segments for themselves and, with a focused strategy, are managing to remain leaders in their respective sub-segments.

Their efforts are therefore to slowly grow these categories as well as their shares in the market. While larger players such as Unilever are trying to grow the market and capture shares, players such as GSK have created a niche for themselves in the sensitive toothpaste market.

Through a series of extensions, Colgate has increased its share of the market from 52.4 per cent in 2011 to 54.5 per cent in 2012. While the extension strategy seems to have worked in retaining and marginally growing its share, analysts wonder whether, in the long run, this strategy will be effective. In other countries Colgate has other brands, such as Elmex and Dentagard, but in India it has followed a single-brand strategy, apart from its acquisition of Cibaca. With competition set to intensify in the main category, and small players creating their own niches, will Colgate be risking its main brands by over-extension and thereby lose share to, say, Oral B or Pepsodent?

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First page of “Loyalty and Durability: Evidence from Toothpaste Tubes”

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Loyalty and Durability: Evidence from Toothpaste Tubes

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This article shows that durable producers under monopolistic competition tend to overextend durability to sell more service at a time. The distortion arises because customers are not committed to the same brand for the next purchase. A testable hypothesis is that firms with larger market shares should choose shorter durability. We test the hypothesis with data from the Chinese toothpaste industry, treating toothpaste as a durable good that provides service flow. As the theory predicts, firms with a larger market share choose a larger opening size for the toothpaste tubes they produce.

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6.8.1 Monopolistic Competition

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Points: 1 / 1, close explanation, back to assignment, attempts 5 - - keep the highest 5 / 5, 8. monopolistic competition, step: 1 of 3, crest is one firm of many in the market for toothpaste, which is in long-run equilibrium., indicate which of the following graphs accurately reflects crest's demand curve, marginal-revenue (mr) curve, average-total-cost (atc) curve, and, marginal-cost (mc) curve., explanation:, in order for a monopolistically competitive firm to be in long-run equilibrium, it must earn zero profit. this occurs when the average-total-cost, curve is just tangent to the demand curve at the profit-maximizing output level. therefore, the appropriate graphical picture of crest's market, position is b. see section: the long-run equilibrium., total score: 5/, price, cost, revenue, quantity of crest toothpaste, next step >, 1. graphical picture 2. profit max 3. welfare effects, try another version continue.

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Course : Microeconomics (ECO201)

University : southern new hampshire university.

monopolistic competition case study toothpaste

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Understanding monopolistic competition - a case of the toothpaste industry.

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COMMENTS

  1. The Toothpaste Industry as a Monopolistic Competitive Market

    The Mauritian toothpaste market is predominantly consistent on brands like; Colgate (45%), Aquafresh (20%), Blendax (14%)which rebranded into Dentamax, Signal, Close Up, Sensodyne, Dabur Herbal among others that share 21% of the market share (Dabeedyal, 2014) others include Himalaya. The existence of these powerful brands fighting for a place ...

  2. Monopolistic Competition

    Monopolistic competition is a market structure where there are many small firms that produce differentiated products. Unlike perfect competition, each firm has some market power due to product differentiation, which allows them to charge slightly higher prices than their competitors. However, because there are many firms producing similar but ...

  3. The U.S. Toothpaste Market: A Competitive Profile

    In 2008 retail sales in the U.S. were $1.27 Billion for the T oothpaste Market. The market leader Crest. had a market share of 34.7%, closely followed by Colgate with a share of 33.5%. W e focused ...

  4. The U.S. Toothpaste Market: A Competitive Profile

    In 2008 retail sales in the U.S. were $1.27 Billion for the Toothpaste Market. The market leader Crest had a market share of 34.7%, closely followed by Colgate with a share of 33.5%. We focused on the most popular pack-size—5.8-6.5oz—which had a 45.3% share. Employing Hierarchical Cluster Analysis, w e tested two hypotheses: (1) That a ...

  5. Case Study of Monopolistic Competition in India

    Case Study of Monopolistic Competition in India. Hindustan Unilever Limited being the leading company in the FMCG sector is the prime focus of our study. It is the largest share holder of the FMCG sector in the Indian market. It was founded in November 1956 and its based in Mumbai, Maharashtra.

  6. Monopolistic Competition Case Study (5 Points) 1.

    Question: Monopolistic Competition Case Study (5 Points) 1. Read the case - Colgate India (see attached) 2. Using the information from the case, draw a graph showing Colgate's current short-run toothpaste position in India. Completely label the graph and identify the resulting economic profit or loss. 1.

  7. Loyalty and Durability: Evidence from Toothpaste Tubes

    This article shows that durable producers under monopolistic competition tend to overextend durability to sell more service at a time. ... We test the hypothesis with data from the Chinese toothpaste industry, treating toothpaste as a durable good that provides service flow. ... This research paper is an exploratory study of brand loyalty in ...

  8. Colgate India Fights for Market Share As Toothpaste Competition

    NEW DELHI -- For more than six decades Colgate-Palmolive's Indian unit ruled the country's oral-care market, piling up huge profit in the absence of major competition from local or foreign companies.

  9. 6.8.1 Monopolistic Competition

    8. Monopolistic Competition STEP: 1 of 3 Crest is one firm of many in the market for toothpaste, which is in long-run equilibrium. Indicate which of the following graphs accurately reflects Crest's demand curve, marginal-revenue (MR) curve, average-total-cost (ATC) curve, and marginal-cost (MC) curve. Explanation:

  10. UNDERSTANDING MONOPOLISTIC COMPETITION

    Clinical Assignment: Quality Improvement Project Part 3Goal:To assess a clinical issue that is the focus of the Quality Improvement Project.Create an outline of the action plan for the project.Content Requirements:Identify stakeholders that will be impacted by the quality improvement project.Identify resources needed to implement the quality improvement project.Develop an action plan for ...