Monopolistic Competition

My firm Quiznos is a Monopolistic Competition. The opening of Chapter 15 supports my firm, based on the fast food comparisons.

Monopolistic competition has several major characteristics that must be met.

As in perfect competition, monopolistic competition must have the existence of many sellers, usually 50 or more firms producing products similar to each other. Quiznos being part of the fast food industry has many competitors such as Subway, Blimpies, Jimmy Johns, Firehouse Subs, and the list goes on and on.

Sellers in a monopolistic competition must be able to differentiate their product. The key to the differentiation is that the consumers have different preferences and are will to pay a little more to satisfy this preference. There are three forms of product differentiation: differentiation by style or type, location and differentiation of quality. So long as the consumer treats the perceived product as different it satisfies the monopolistic characteristics. Quiznos was able to separate for the pack by offering premium meats sliced by hand, angle cut partisan breads and the ever popular MMM toasty subs. This difference also allowed Quiznos to charge a little more for their product.

In addition to the large number of competitors and product differentiation, there must be a relative easy entry and exit into the industry. Quiznos only required a franchise fee, location and financing to open a unit and as for the exit. If the franchisee was not profitable they could simply shutter the door.

As in the case of perfect competition, a firm under monopolistic competition decides about the quantity of the product produced on the basis of the profit maximization principle--it produces the quantity that maximizes the firm's profit. Also, conditions of profit maximization remain the same--the firm stops production where marginal revenue equals marginal cost of production. But unlike perfect competition, a firm under monopolistic competition has some control over the price it charges, as the firm differentiates its products from those of others. However, this price making power of a monopolistically competitive firm is rather small, since there are a large number of other firms in the industry with somewhat similar products. Remember that a perfectly competitive firm has no price making power--each firm is a price taker, as it produces a product identical to those produced by a large number of other firms in the industry.

Quiznos has met all the characteristics of the monopolistic competition. They have a large number of competitors, there toasted, chef inspired subs makes them different and franchisee are free to expand or close there door when losing money.

As in the case of perfect competition, a firm under monopolistic competition decides about the quantity of the product produced on the basis of the profit maximization principle--it