Answer in details
What is Monopolistic Competition? Explain in detail the features of Monopolistic Competition.
Answer: Monopolistic competition is defined as the competition among a large number of sellers. These sellers sell differentiated products that are close substitutes of each other. Dealing in differentiated products is one of the unique features of the monopolistic market structure.
Some of the features of monopolistic competition are as follows:
i. Large number of buyers and sellers - There are a large number of buyers and sellers in a monopolistic market.
ii. Differentiated product - Products of a firm are slightly different from those of other firms, but they are close substitutes. Product differentiation is achieved through brand name, trade mark and advertisements.
iii. Selling cost - The need of the selling cost arises due to the sole aim of differentiating products. It is through the help of advertisements that a monopolistic firm tries to convince the consumers by distinguishing its product from its substitutes on qualitative basis.
iv. Free entry and exit of firms - The firms in the monopolistic market enjoy the freedom of free entry and exit from the market. However, at times, because of legal barriers and patent rights, a new firm cannot enter the market.
v. Restricted entry of new firms- The entry into the monopolist market is restricted. In other words, no new firm can enter the monopoly market. There may be various legal barriers such as, patent rights, cartel laws, exclusive rights, etc. to restrict the entry of the new firms.
vi. Elastic demand curve- The demand curve faced by the firms is highly elastic and slopes downwards. This is because of the availability of a large number of close substitute products.
