Question

Explain about Monopolistic competition please

Answer 1

Monopolistic competition is a form of market in which there are many buyers and sellers of the product, but product of the each seller is different from that of the other.

Features of monopolistic competition -

i. Large number of buyers and sellers - There are large number of buyers and sellers. Also, the size of each firm is small. Each firm has a limited share of the market.

ii. Product differentiation - Product differentiation is a distinct feature of monopolistic competition. Differentiation implies that rival firms are selling products which are not perfect substitute but close substitute of each other. Example - close up toothpaste and colgate toothpaste .

iii. Selling cost- Each firm has to spend a lot on the advertisement of its products. In order to sell more units of the product, it gives wide publicity of its product in news, cinemas, journals, radio, TV etc. The expenses on advertisement and publicity are called selling costs.

iv. Freedom of entry and exit - Firms are free to enter the Industry or leave it. However, new firms may not have absolute freedom of entry into industry. Products of some firms may be legally patented. New firms cannot produce identical products.

v. Non price competition - Non price competition is another important feature. The firms often avoid getting into price war. Instead they focus on non price competition. Ex- A firm's product is launched and promoted by the celebrities.

vi. Downward sloping demand curve - Partial control over price leads to downward sloping demand curve of the firm which means quantity sold increases when price is reduced. If price is raised, quantity sold tends to reduce.