Monopolistic competition is a market structure that is characterized by a large number of firms that sell similar but not identical products or services. Each firm has a degree of market power, meaning that it can influence the price and quantity of the good or service it sells, but it is not a pure monopolist.
There are several characteristics that define monopolistic competition:
- Many sellers: Monopolistic competition is characterized by a large number of firms that sell similar but not identical products or services. This means that there is some degree of competition among firms, but not as much as in a perfectly competitive market.
- Differentiated products: Firms in a monopolistically competitive market sell products or services that are similar but not identical. This means that firms can differentiate their products or services based on features, quality, or branding, and charge a higher price as a result.
- Some degree of market power: Because firms in a monopolistically competitive market sell differentiated products, they have some degree of market power. This means that they can influence the price and quantity of the good or service they sell, but they are not pure monopolists.
- Low barriers to entry: Monopolistic competition typically has low barriers to entry, which means that new firms can enter the market and compete with existing firms.
Examples of monopolistic competition include markets for consumer goods such as clothing, shoes, and electronics, as well as markets for services such as restaurants and hotels.