Why the Eastern Tobacco Company in Egypt is an example of monopolistic competition?
Eastern Tobacco Company is known as the largest tobacco producer in Egypt. The company produces different products such as cigarettes, molasses tobacco, pipe tobacco and cigars (Oxford Business Group, 2008). Additionally, it produces other products that are related to cigarettes. These may include homogenized and filter rods tobacco (Owen & Pamuk, 1998). Their entire products are divided into two categories. These may include local and export products. The company is known as the largest company producing large amount of tobacco in Egypt Thus, it faces stiff competition by local and international companies that produces tobacco.
Eastern Tobacco Company is an example of monopolistic competition (Owen & Pamuk, 1998). This is due to the fact that all tobacco industry is categorized in monopolistic competition. One of the viable reasons that make Eastern Tobacco Company to be categorized in monopolistic competition is the fact that there are quite a large number of companies that are producing the same products; however, they have differentiated them. This means that all companies under tobacco sector are satisfying the market demand for tobacco (Solow, 1999).
Another reason that makes Eastern Tobacco Company to be a good example of monopolistic competition is the fact that it brings out differentiated products that are reasonably close substitutes for each other (Oxford Business Group, 2008). For instance, the company brings into the market different types of cigarettes. These may include homogenized and filter rods cigarettes. It also produces different types of tobacco, for instance, molasses tobacco, pipe tobacco.
Thus, the company has one of the characteristics of firms that are categorized in the group of monopolistic competition. Due to the fact that products are of close substitutes, there can be any reduction of price. This can be seen in Eastern Tobacco Company as they can be in a position to reduce the price of their products (Owen & Pamuk, 1998). This helps them to attract large number of customers and thus, they are perceived as the largest company in Egypt producing tobacco.
One of the major characteristics of monopolistic competition is the fact that there are a large number of sellers (Solow, 1999). They tend to sell differentiated products. This can be evidenced in tobacco industry, as there is quite number of sellers that sell different types of tobacco. For instance, many local companies are selling same products as Eastern Tobacco Company. Thus, there is a different seller that sells tobacco like Eastern Tobacco Company. This means that Eastern Tobacco Company have achieved this characteristics of monopolistic competition where many sellers selling differentiated products dominate the industry.
Eastern Tobacco Company does not have price competition. This is due to the fact that the company has the freedom to win over its entire customers. For instance, large number of customers prefers Eastern Tobacco Company as they offer after sales services. This is a situation where a buyer purchases large tonnes of tobacco and the company offers to take them to his or her home. Offering after sales services is one way that Eastern Tobacco Company uses to attract large number of customers.
From the above point of view, it is clearly evidenced that Eastern Tobacco Company has all characteristics that monopolistic competition is associated with. Thus, it can be classified as a good example of monopolistic competition. For instance, the company has similar products but has differentiated them to different brands. These may include molasses tobacco, pipe tobacco (Oxford Business Group, 2008). Therefore, it is an example of monopolistic competition.
Owen, E. R. J., & Pamuk, S. (1998). A history of Middle East economies in the twentieth century. London: I.B. Tauris Publishers.
Oxford Business Group. (2008). The Report: Emerging Egypt 2008. London: Oxford Business Group.
Solow, R. M. (1999). Monopolistic competition and macroeconomic theory. Cambridge [u.a.: Cambridge Univ. Press.