The equilibrium of an individual organization under monopolistic competition.

However, in monopolistic competition, it is necessary for an organization to analyze price and output of other organizations existing in the industry.

The price-output equilibrium of all organizations is known as group equilibrium.

The concept of group equilibrium was introduced by Chamberlin. Group equilibrium represents the price and output of organizations having close substitute. However due to product differentiation, it is difficult to form market demand schedules and supply.


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For overcoming the problem Chamberlin gave a concept called product group, which includes products that are technological and economic substitute of each other. Technological substitutes are the products having technical similarity, while economic substitutes are the products that have same prices and fulfill the same want of consumers.

In technical terms, product group refers to a group in which the demand for each product is highly elastic. This is because in the product group, the demand for a product changes with the changes in the prices of other products within the group. Therefore, the price and cross elasticity of demand for products forming the group is high.

In an industry, different types of groups exist automatically. For example, the automobile industry comprises various groups on the basis of product type. In such an industry one group manufactures cars and the other produces trucks.

However, the main competition would be among those organizations manufacturing similar products (cars or trucks) as they are close substitutes of each other. Due to product differentiation, there is a large variation in the demand and cost curves of organizations. Consequently, the price, output, and profits of organization also differ from each other.


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