4.1.5.4 Monopolistic competition
Monopolistic competition characterizes an industry in which many firms offer products or services
that are similar, but not perfect substitutes. The key features of monopolistic competition are:
Large number of small buyers and sellers with weak market power.
Low (or no) barriers to entry or exit - firms can easily enter and exit the market.
Differentiated goods - all goods must be similar but slightly different making the cross price
elasticity of demand of the goods and services sold high (substitutes).
A monopolistically competitive market has imperfect competition. Firms are short run profit
maximisers.
Imperfect information
Firms in a monopolistically competitive market compete using non-price competition.
Non-price competition involves ways that firms seek to increase sales and attract customers
through methods other than price. Non-price competition can include quality of the
products, unique selling points, superior locations, advertising, loyalty, branding, and after-
sales services.
Examples of monopolistic competition include hairdressers, takeaway, restaurants, and regional
plumbers.
Monopolistic competition characterizes an industry in which many firms offer products or services
that are similar, but not perfect substitutes. The key features of monopolistic competition are:
Large number of small buyers and sellers with weak market power.
Low (or no) barriers to entry or exit - firms can easily enter and exit the market.
Differentiated goods - all goods must be similar but slightly different making the cross price
elasticity of demand of the goods and services sold high (substitutes).
A monopolistically competitive market has imperfect competition. Firms are short run profit
maximisers.
Imperfect information
Firms in a monopolistically competitive market compete using non-price competition.
Non-price competition involves ways that firms seek to increase sales and attract customers
through methods other than price. Non-price competition can include quality of the
products, unique selling points, superior locations, advertising, loyalty, branding, and after-
sales services.
Examples of monopolistic competition include hairdressers, takeaway, restaurants, and regional
plumbers.
