Competing In Imperfectly Competitive

Markets: Nonprice Competition

▪ Definition: Any effort made by firms other
than a change in price of the product in
question in order to change the demand for
their product.

▪ Efforts intended to affect the nonprice

determinants of demand.
Nonprice Determinants of Demand
Any factors that causes the demand curve to shift.
▪ Tastes and Preferences
▪ Income
▪ Prices of substitutes and complements
▪ Number of buyers
▪ Future expectations
▪ Financing terms and conditions
Nonprice Variables
▪ Any factor that managers can control, influence, or
explicitly consider in making decisions affecting the
demand for their goods and services.
▪ Advertising
▪ Promotion
▪ Location
▪ Market Segmentation
▪ Loyalty Programs
▪ Product
extensions and
new product
development
▪ Special customer
services
▪ Product lock-in or
tie-in
▪ Preemptive new
product
announcements
The Reality of Monopolistic Competition
and Oligopoly: Imperfect Competition
Monopolistic Competition:
▪ Large number of relatively small firms
▪ Differentiated product
▪ Competitive pressures
▪ Free entry and exist
Oligopoly:
▪ Small number of relatively large firms
▪ Homegenous or differentiated product
▪ Few restriction to entry and exist
▪ Their size and domination of market also make
it imperative for them to watch each other
closely when setting their prices.

▪ Distinction between monopolistic competition

and oligopoly can sometimes be blurred in
actual markets.
▪ The American automobile industry: in the early 1970s, General Motors held
more than 50 percent market share and you will probably find the
American automobile market as a prime example of an oligopoly.

▪ The increasing dominance of

Japanese, German, and, more
recently, Korean automakers in
the U.S. market make it hard to
argue that entry is difficult in this
market.
▪ Small retail establishments around the world: A frequently used example
of monopolistic competition is the retail industry, but the competitive
landscape of the retail business has changed dramatically in the United
States over the past several decades.

▪ Global issuers of credit cards: monopolistic competition or oligopoly?

• On the surface, the credit card

industry appears to be an oligopoly
dominated by Visa, MasterCard,
American Express, and Discover.

• Visa and MasterCard each have

thousands of members, most of
whom are banks. This would
indicate monopolistic competition.