Previously, we were discussing the Pure Competition price model. We found there

Question

Previously, we were discussing the Pure Competition price model.

We found there were five main characteristics of Pure Competition:

1. Large number producers and buyers

2. Uniform product

3. No one producer or buyer can influence the price

4. No barriers to entering or exiting the market

5. Sufficient information available to buyers and sellers

Now, we are discussing Monopolistic Competition. Use the example of Advil and answer the following question. How can we tell Advil is NOT a Purely Competitive market? Please explain using at least three of the characteristics of Pure Competition listed above.

Explanation / Answer

1. Well, Advil is a drug which is used to reduce hormones that causes pain and inflamation in the body. There are many products with same function but slight different in branding or in quality. This characteristic associated with Advil advocates that the market does not sell uniform or identical product, Brand or quality differentiation is charecteristics of monopolistic competition market.

2. Anyone can not enter into the market. There are patent law and local government law, which prevent someone to enter the market. There are few barrier to entering or exiting the market. This is not a purely competitive market where etry and exist is freely possible, This charecteristic also suggest that Advil is in a monpolistic competitive market.

3. No, sufficient information is not available to buyers and seller. Buyers do not know about the product in detail, market demand and market supply, same is true for sellers. This is beacuse the drug is purchased when it is required.

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