A Business Encyclopedia

Monopolistic Competition

Definition: Under, the Monopolistic Competition, there are a large number of firms that produce differentiated products which are close substitutes for each other. In other words, large sellers selling the products that are similar, but not identical and compete with each other on other factors besides price.

Features of Monopolistic Competition

Monopolistic Competition

  1. Product Differentiation: This is one of the major features of the firms operating under the monopolistic competition, that produces the product which is not identical but is slightly different from each other. The products being slightly different from each other remain close substitutes of each other and hence cannot be priced very differently from each other.
  2. Large number of firms: A large number of firms operate under the monopolistic competition, and there is a stiff competition between the existing firms. Unlike the perfect competition, the firms produce the differentiated products which are substitutes for each other, thus make the competition among the firms a real and a tough one.
  3. Free Entry and Exit: With an intense competition among the firms, the entity incurring the loss can move out of the industry at any time it wants. Similarly, the new firms can enter into the industry freely, provided it comes up with the unique feature and different variety of products to outstand in the market and meet with the competition already existing in the industry.
  4. Some control over price: Since, the products are close substitutes for each other, if a firm lowers the price of its product, then the customers of other products will switch over to it. Conversely, with the increase in the price of the product, it will lose its customers to others. Thus, under the monopolistic competition, an individual firm is not a price taker but has some influence over the price of its product.
  5. Heavy expenditure on Advertisement and other Selling Costs: Under the monopolistic competition, the firms incur a huge cost on advertisements and other selling costs to promote the sale of their products. Since the products are different and are close substitutes for each other; the firms need to undertake the promotional activities to capture a larger market share.
  6. Product Variation: Under the monopolistic competition, there is a variation in the products offered by several firms. To meet the needs of the customers, each firm tries to adjust its product accordingly. The changes could be in the form of new design, better quality, new packages or container, better materials, etc. Thus, the amount of product a firm is selling in the market depends on the uniqueness of its product and the extent to which it differs from the other products.

The monopolistic competition is also called as imperfect competition because this market structure lies between the pure monopoly and the pure competition.

Leave a Reply

Your email address will not be published. Required fields are marked *


Related pages

simple definition of bureaucracydefinition of outsourcewhat is promotional mix in marketingformula to calculate inventory turnover ratiolikert scale questions definitionordinal defdivest meansexamples of oligopoly marketduality theory in linear programmingpdcs meaningfactor affecting consumer behaviourmeaning of ergfactors of promotion mixretrenchment definition in hrmexamples of laissez faire leaderslikert scale examplesan ethnocentric staffing policyprovident funds actelements of marketing promotion mixtransactional relationship meaningcollective bargaining in indiaideal self definitionwhat is a scatter diagramdelphi techiquemarginal utility curve definitionnps investmentojt meansinternal and external factors affecting marketing environmentfourteen principles of henri fayolkarl pearson's correlation coefficientquota sample definitiondescribe collective bargainingintrapreneurlessor lessee meaningindifference mapswhat is a monetaristtheory of propinquityadvantages of hrppure competition definition economicsscientific management by taylorweber bureaucratic theorywhat is the meaning of poacherdebenture financelottery method of samplingwhat is fiscal deficit in hindisocial loafing meanscharacteristics oligopoly market structureresonant definformal communication meaningreturns to scale cobb douglasus treasury bond definitionbank debenture definitionwhat is diminishing marginal utility in economicsmeaning of monopoly in economicsassumptions meaning in urduoligopoly definition economicsdefinition of laissez fairecardinal theory of utilitysnowballing techniquemotivation theory by herzbergfiedler modelintranet meaning in hindifactors affecting buying behaviourcompany provident fundmm theory of dividend policypublic provident fund withdrawalmeaning of marginal standing facilitydividend relevance theory pdfeconomic barometer definitionwhat is meant by roisources of secondary data in marketing researchclassical and neoclassical theoriestaylors scientific management theoryexample of markup pricingconditional learning theoryproduction function in microeconomicswhat is the meaning of rowanvariable cost economics definition