Monopolistic competition is a market structure found in the industry where there is a large number of small sellers selling differentiated but close substitute products.
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Characteristics of Monopolistic Competition Market Structure
Following are the main features or characteristics of monopolistic competition market structure:
1. Free Entry and Exit of Firms
Under this market structure, all the firms are free to enter and exit the industry and where they are interested.
New firms are free to enter the market with new brands of products which are close substitutes of the existing brands.
2. Product Differentiation
Product differentiation is another characteristic of monopolistic competition. But these products are near substitutes.
The differentiation is based on the quality, shape, size, packing, trademark, brand, color, behavior of the seller and location of the shop.
However, being the differentiation the products of a seller are the close substitute of another seller.
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3. A Large Number of Buyers and Sellers
In a monopolistic competition market, there is a large number of buyers and sellers.
Sellers of a commodity or not in a position to affect the market behavior individually and the buyers purchase the goods as per their preferences.
The number of buyers and sellers is smaller than those of perfect competition in this market.
Related: 5 Types of Market Structures in Economy.
4. Non-Price Competition
Under monopolistic competition firms complete with one another without changing the prices of their products.
But they indulge in advertisement and sales promotion techniques (non-price competition) to attract more customers in order to boost their sales.
5. Varying Preferences of Consumers
Under monopolistic competition, sellers are selling varied products that are different in quality and quantity.
Buyers buy these products according to their preferences, income, etc.
Buyers are attracted by the sellers on the basis of the specialized qualities of their products.
6. Facilities for Customers
Under monopolistic competition sellers of a product provide various facilities to their customers so that they are attracted to purchase more of their products, credit facility, home delivery, repair facility.
All these facilities attract customers.
Bonus: 6 Methods and Techniques of External Environmental Analysis.
7. Existence of Competition and Monopoly Elements
Under monopolistic competition, some of the characteristics of perfect competition are in existence such a large number of buyers and sellers, free entry and exit of firms in the industry.
On the other hand, some of the salient features of monopoly product differentiation and non-price competition are also found in this market.
Hence, we call it midway between perfect competition and monopoly.
8. Demand Curve is Highly Elastic
Under monopolistic competition, the demand curve is highly elastic because firms are free to enter and exit the industry.
Thus, we can say that product differentiation is the main character on the basis of which monopolistic competition is recognized as a different market structure.
Thus, now you know the major characteristics of monopolistic competition market structure.
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