Monopolistic Competition

Monopolistic competition is a market structure with many firms selling products that are similar but differentiated.

Conditions

Many Firms

There are many firms competing for customers.

Few Artificial Barriers to Entry

New firms can enter relatively easily.

Slight Control over Price

Product differentiation gives firms some control over their prices.

Differentiated Products

Products differ in characteristics such as quality, design, taste, service, or brand image.

Non-Price Competition

Firms attract customers without simply lowering their prices.

Four common methods are:

1. Characteristics of goods
   Size, colour, shape, texture, or taste.

2. Location
   A convenient location can attract customers.

3. Service level
   Better service can allow a firm to charge a higher price.

4. Advertising and image
   Advertising creates differences between competing products.

Perfect vs Monopolistic Competition