A key feature of monopolistic competition is that the firms...

A key feature of monopolistic competition is that the firms involved are “price setters” rather than “price takers.” However, owing to what reason is their ability to set prices beyond a certain point is undermined?

Transcript

00:01 Hi, your question asked about perfect competition industries.

00:05 So an industry, the word industry also to mean market.

00:09 It can also mean market, really.

00:11 It's like the corn industry is the same thing as the corn market.

00:14 It's just the industry makes it and the market sells it, but it's the same concept.

00:19 Okay.

00:22 So perfect competition is when the market structure, where all the producers, consumers have full and symmetric information and no transaction costs.

00:32 There are a large number of producers, consumers competing with one another of this kind of environment.

00:38 They're, like, the prices aren't, so like foreign exchange markets, like the here all the currencies are homogenous, agricultural markets.

00:48 There are several farmers selling identical products to the markets and many buyers.

00:52 They have them the same price.

00:53 So like you can have different, a perfect competition industry is where there's different producers of the same product and the product is being sold really for the same price.

01:03 Like that's what it means by homogenous, the same price.

01:05 Agricultural markets like if you and i are corn farmers, our corn costs the same amount.

01:11 So let's look at our answer or question.

01:13 Okay, in a perfectly competitive industry, there are no significant barriers to entry...

Question

A key feature of monopolistic competition is that the firms involved are “price setters” rather than “price takers.” However, owing to what reason is their ability to set prices beyond a certain point is undermined?

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