Q.What is monopolistic competition? State its main features, with examples.
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Start your 14-day free trial to unlock the full solution →Monopolistic competition takes its name from combining features of both perfect competition and monopoly, and understanding it as exactly that combination is the easiest way to remember it. From perfect competition, it keeps a large number of independent sellers and free entry and exit of firms in response to profit opportunities. From monopoly, it borrows the idea of a single seller having some control over price — except that here, every one of the many sellers has this limited control, rather than one seller having complete control.
The feature responsible for this limited price control is product differentiation: each seller's product is a close, but not perfect, substitute for its rivals', differentiated by brand name, packaging, perceived quality, after-sales service, or convenient location, even where the underlying product performs essentially the same function as its rivals'. Toothpaste, soaps, shampoos, restaurants, and salon or tailoring services in a city are everyday examples — many sellers, a broadly similar underlying product, yet each seller with its own base of loyal customers who do not treat every brand as perfectly interchangeable with another. …
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