Defining Monopolistic Competition (Excercise 7-1)

Size:	Small Company	Medium Company	Large Company
Features:	River Cafe’ in Calgary	Cuisinart	Pepsi Co.
Differentiated products	They differentiate themselves by their location.  They are located in a neat place on Prince’s Island park where you have to walk to get there.  It is a neat dining experience compared to other high end restaurants.	Yes – Cuisinart has very similar products to Kitchenaid but creates a difference for the consumer to see by offering a better and longer warranty/guaranty  on their products	Yes – They create this difference in consumers’ minds through their advertising.  Coke puts out their product that is very similar but consumers prefer Pepsi over coke and do not consider Coke a suitable substitute because of Pepsi’s branding.
Control over price	They set their own prices and do not worry about the competitions.  They charge what they feel their food and experience is worth without worrying about loosing business to competition.	They don’t have control over price but they choose their price without worrying about the competitors price. They emphasize their quality and guaranteeing their products rather than being competitive with their price.	Pepsi looks at the competitions price but could charge what they want, to an extent, without worrying about loosing consumers to the competition.
Mass advertising	No they do not set themselves apart but mass advertising.  They do some print ads but nothing on a large scale.  They use word of mouth from consumers that have dined in their restaurant.	They do advertise on TV and in print but they do not put their emphasis on advertising.	Yes – They pay for TV ads, print ads they sponsor pro teams and use pro athletes and celebrity’s to advertise their products.  They sponsor schools so that their product is the sole product being sold in the vending machines at those schools.  They are huge into advertising everywhere.
Brand name goods	They are not a brand name service.  They have one location and that is it.	It is a brand name that people associate with quality and their more expensive price tag.	Yes – They spend millions of dollars a year advertising and sponsorships of events and teams to get their brand known to as many consumers as possible.

Monopolistic competition is a type of imperfect competition such that many producers sell products that are differentiated from one another as goods but not perfect substitutes (such as from branding, quality, or location).  In monopolistic competition, a firm takes the prices charged by its rivals as given and ignores the impact of its own prices on the prices of other firms.


^Source
http://en.wikipedia.org/wiki/Monopolistic_competition