Question

What are the characteristics of a monopolistic competition? What are the differences and similarities between a monopolistic competition and a perfect completion? Give an example for each of these two market structures.

Answer 1

Characteristics of monopolistic competition market

In monopolistic competition there will be more than one seller producing and selling a similar good or service. So there will be competition. In this market goods sold by sellers are similar but these goods cannot be considered as substitute as each one is different from other in different ways. There is no entry or exit barriers in the market. Every company has their unique pricing and selling strategy.

Similarity between monopolistic competition and perfect competition

1) There will large number of sellers in both the markets and they will compete with each other.

2) There are no entry and exit barriers.

Difference Between monopolistic competition and perfect competition

1) In perfect competition the good is homogeneous in every way where as in monopolistic competition similar products are sold but they are never identical, so they cannot be acting as substitutes.

2) In perfect competition supply and demand of goods or services will set the prices. In monopolistic competition seller will decide the prices.

Examples

Monopolistic competition : Restaurant business, shoe business

Perfect competition: goods produced by farmers like rice, mangoes etc