Goods can be stored for use in future or multiple use. Services cannot be stored. There is a time lag between production and consumption of goods.
Inefficiency[ edit ] There are two sources of inefficiency in the MC market structure. The monopoly power possessed by a MC firm means that at its profit maximizing level of production there will be a net loss of consumer and producer surplus.
The second source of inefficiency is the fact that MC firms operate with excess capacity. Both a PC and MC firm will operate at a point where demand or price equals average cost.
For a PC firm this equilibrium condition occurs where the perfectly elastic demand curve equals minimum average cost. Thus in the long run the demand curve will be tangential to the long run average cost curve at a point to the left of its minimum.
The result is excess capacity. Products under monopolistic competition are spending huge amounts on advertising and publicity.
Much of this expenditure is wasteful from the social point of view. The producer can reduce the price of the product instead of spending on publicity. Under Imperfect competition, the installed capacity of every firm is large, but not fully utilized.
Total output is, therefore, less than the output which is socially desirable.
Since production capacity is not fully utilized, the resources lie idle. Therefore, the production under monopolistic competition is below the full capacity level.
Idle capacity under monopolistic competition expenditure leads to unemployment. In particular, unemployment of workers leads to poverty and misery in the society. If idle capacity is fully used, the problem of unemployment can be solved to some extent.
Under monopolistic competition expenditure is incurred on cross transportation. If the goods are sold locally, wasteful expenditure on cross transport could be avoided. Under monopolistic competition, there is little scope for specialization or standardization.
Product differentiation practiced under this competition leads to wasteful expenditure. It is argued that instead of producing too many similar products, only a few standardized products may be produced. This would ensure better allocation of resources and would promote economic welfare of the society.
Under perfect competition, an inefficient firm is thrown out of the industry. But under monopolistic competition inefficient firms continue to survive. Problems[ edit ] Monopolistically competitive firms are inefficient, it is usually the case that the costs of regulating prices for products sold in monopolistic competition exceed the benefits of such regulation.
A monopolistically competitive firm might be said to be marginally inefficient because the firm produces at an output where average total cost is not a minimum. A monopolistically competitive market is productively inefficient market structure because marginal cost is less than price in the long run.
Monopolistically competitive markets are also allocatively inefficient, as the price given is higher than Marginal cost. Advertising induces customers into spending more on products because of the name associated with them rather than because of rational factors.
Defenders of advertising dispute this, arguing that brand names can represent a guarantee of quality and that advertising helps reduce the cost to consumers of weighing the tradeoffs of numerous competing brands.
There are unique information and information processing costs associated with selecting a brand in a monopolistically competitive environment.
In a monopoly market, the consumer is faced with a single brand, making information gathering relatively inexpensive. In a perfectly competitive industry, the consumer is faced with many brands, but because the brands are virtually identical information gathering is also relatively inexpensive.
In a monopolistically competitive market, the consumer must collect and process information on a large number of different brands to be able to select the best of them. In many cases, the cost of gathering information necessary to selecting the best brand can exceed the benefit of consuming the best brand instead of a randomly selected brand.
The result is that the consumer is confused. Some brands gain prestige value and can extract an additional price for that. Evidence suggests that consumers use information obtained from advertising not only to assess the single brand advertised, but also to infer the possible existence of brands that the consumer has, heretofore, not observed, as well as to infer consumer satisfaction with brands similar to the advertised brand.However, “Characteristics of services compared to goods” is an important topic.
Therefore, to make the term paper on its huge enough data from the different place, we have faced many obstacles to complete. Caution. Data in archived news releases may have been revised in subsequent releases.
The latest data, including any revisions, may be obtained from the databases accessible on the BLS program homepages. 5 Distinctive characteristics of services or classification of services which are; Perishability, Intangibility, Variability, Inseparably and Non-ownership.
Stuart Anderson's stories. I write about globalization, business, technology and immigration. Value Chain for Services A new dimension of “Porter’s Value Chain” (Published in the IMS International Journal – ) By Prof. Elisante ole Gabriel (PhD, Marketing) Lecturer – Mzumbe University.
Service Marketing: 5 Major Characteristics of Services Olufisayo Marketing June 20, In our last post, we discussed “How you can Successfully Market your Services“.