Question

Explain 3 features each of monopolistic competitive industry and an oligopoly.

Answer 1

Monopolistic competitive industry:-

A monopolistic competition is a market structure in which large number of firms compete with each other by producing differentiated products that are the close substitutes of each other

The three main features of monopolistic competitions are;

1. Free Entry and Exit of firms;

• Under monopolistic competition, the competing firms can Enter or Exit the industry freely.
• The firms Enter the market when the existing firms in the market are earning super normal profits.
• The firms exit the Industry when they are making losses.

2. Product differentiation;

Monopolistic competitive industries produce differentiated products that may be slightly similar but not identical to each other.

3. Large number of firms;

Monopolistic competitive market consists of relatively large number of firms sharing the market demand for the product.

Oligopoly:-

Oligopoly is a market structure dominated by small number of large firms competing with each other.

1. Interdependence;

The firms operating under oligopoly are Interdependent and the actions of one firm doesn't affect the other firms.

2. Barriers to entry of firms;

• Various barriers like patents prevent new firms into the Industry.
• Only dominant firms can earn abnormal profits in long run..

3. Non price competition;

The firms operating under oligopoly follow non price competitive strategies in distinguishing their services and products from other firms by using factors like packaging, delivery or services in order to increase the demand for their products.