Abc Ako

A type of competition within an industry where:

1. All firms produce similar yet not perfectly substitutable products.

2. All firms are able to enter the industry if the profits are attractive.

3. All firms are profit maximizers.

4. All firms have some market power, which means none are price takers.

6 most important characteristics features of monopolistic competition

The concept of monopolistic competition is more realistic than perfect competition and pure monopoly. According to Chamberlain in real economic situation both monopoly and competitive elements are present. Chamberlain’s monopolistic competition is the blending of competition and monopoly. The most distinguishing feature of monopolistic competition is that the products of various firms are not identical but different although they are close substitutes for each other. Like perfect competition there are a large number of firms but unlike perfect competition the firms produce differentiated products which are close substitutes of each other.

Under monopolistic competition there is freedom of entry and exit. Thus under monopolistic competition it is found that both the features of competition and monopoly are present. In India, for example, we find the monopolistic competition. In India there are a number of manufacturers producing different brands of tooth paste viz Colgate, Pepsodent. Promise, Close-up, Prudent and Forhans etc.

The manufacturer of Colgate has got the monopoly of producing it. Nobody can produce and sell tooth paste with the name Colgate. But at the same time he faces competition from other manufactures of tooth paste as their products are close substitutes of Colgate tooth paste. Thus we find that monopolistic competition is the real market structure than either pure competition or monopoly.

Important features of monopolistic competition

1. Existence of large number of firms:

The first important feature of monopolistic competition is that there is a large number...