Monopolistic competition is a market structure which combines

elements of monopoly and competitive markets. Essentially a

monopolistic competitive market is one with freedom of entry and exit,
but firms can differentiate their products. Therefore, they have an How to introduce the market?
inelastic demand curve and so they can set prices. However, because
there is freedom of entry, supernormal profits will encourage more firms
to enter the market leading to normal profits in the long term. In
addition Monopolistic competition is a form of imperfect competition. It
can be found in many real world markets ranging from clusters of
sandwich bars, other fast food shops and coffee stores in a busy town
centre to pizza delivery businesses in a city or hairdressers in a local
area.
 Example :

 Resturant :
Hotel
Saloon
TV Programs
 Fuel Stations
Music Cassettes
 Shoe Stores
Monopolistic Market Demand Curve

The demand curve as faced by

a monopolistic competitor is
not flat, but rather downward-
sloping, meaning that the
monopolistic competitor, like
the monopoly, can raise its
price without losing all of its
customers or lower its price
and gain more customers.
 Characteristics of
Having a large number of dealers
monopolistic competition and
It should be noted that a monopolistically competitive market does not have as many suppliers as a perfectly competitive market, but
detailing
there is a significant number. When there are a large number of firms in the industry, the percentage of one firm's share of the total
market supply is extremely insignificant. Therefore, the influence that a single firm can have on the average price of the remaining
firms in the market is extremely limited. There are a large number of institutions and they work independently of each other.

Product Differentiation

A very distinctive feature of a monopolistically competitive market is product differentiation. Every organization tries to separate the product it
provides from the remaining suppliers and present it to the market as a different product. Products produced by one firm are close substitutes, but
product differentiation does not make them perfect substitutes. For example, different types of soaps, toothpastes, and shoes found in the market are
such differentiated products. Product differentiation further strengthens the ability of manufacturing firms to compete with each other.
Obstructiva Access
It is not difficult to enter and exit the monopoly competition industry. In the short run, when existing firms in the
industry earn profits, new firms are attracted to it and enter the industry. When losses occur in the short run, firms that
remain in the industry exit the industry immediately in the long run. Examples of monopolistically competitive
markets include service sector industries such as restaurants, grocery stores, and barber shops.

Imperfect Consumer Knowledge

customers often consider information, such as pricing and quality, to make effective purchasing decisions. Consumers
rarely have perfect knowledge about each product they buy, and companies use this to create a perception of
difference through advertising and marketing campaigns, even though there may not be any actual difference. For
example, if a new parent visits a store to buy baby food, they may see dozens of choices. Each product and brand
might offer its own benefits, packaging and advertising, with seemingly arbitrary price differences.
 DIAGRAM MONOPOLISTIC COMPETITION SHORT RUN

In the short run, the diagram for monopolistic

competition is the same as for a monopoly.

The firm maximizes profit where MR=MC.

This is at output Q1 and price P1, leading to
supernormal profit

Monopolistic competition long run

Demand curve shifts to the left due

to new firms entering the market.
In the long-run, supernormal profit
encourages new firms to enter. This
reduces demand for existing firms
and leads to normal profit.
 Number of sellers Many small firms

Product characteristics Differentiated - products are similar and

SUMMARY substitutable, but not identical

Market power: Firms have a small amount of influence

over price.

Barriers to entry: Low. Easy to enter the market

Efficiency Fairly efficient market structure

Effect on price There is a slight effect

The demand curve Takes a flat nature