Meaning and features of monopolistic competition market
Monopolistic competition.- Monopolistic competition is a market setting where there are many firms which produce differentiated products.- Monopolistic competition is a middle ground between monopoly, on the one hand and perfect competition (a purely theoretical state), on theother and combines elements of each.Features of monopolistic competition.(i) Many buyers and sellers – The sellers and buyers of similar products are many and operate independently.(ii) Differentiated products – The sellersoffer products which are close substitutes but vary in quality, branding and even in way of advertising them.(iii) Actions of one firm attracts other firms – Any activity done by one firm such as advertising will attract the attentionof other firms in the industry.(iv) Firms set similar prices – Firms set their own prices depending on the costs incurred by each in the production process and these prices eventually are the same.(v) There is free entry and exit – New firms can join the existing industry easily while the existing firms can leave the market without restriction.(vi) Factors of production are not controlled – No firm has control over the factors of production. The factors of production are acquired by each firm at the prevailing market prices.(vii) There is perfect knowledge in the market – The buyers know the various products offered and their corresponding prices.- Similarly, the firms are aware of each other as a competitor for the same customers.