In effect, consumers have more options in terms of which product to purchase. Notably, a market with monopolistic competition comprises a high number of active competitors in the space that each sell product(s) to serve the same or an adjacent end-market. The products sold can be different on the basis of the following aspects: The reason for the inefficiency is that these companies must strategize methods to differentiate their offerings from the rest of the market.įor example, a company can overspend on marketing and advertising, or focus too much on the non-core components of a product such as the packaging material rather than focusing on product capabilities.ĭifferentiated products can be identified by consumers by their specific marketing tactics, branding, and quality. What are the Characteristics of Monopolistic Competition?Ĭompanies in monopolistic competition often operate with excess capacity, meaning there is a mismatch in supply and demand. Entrance and competing in the market are relatively easy for new companies (and it is also easy to exit), but of course, there is the opportunity cost of time to consider. Low Barriers to Entry: Another unique feature of monopolistic competition is the freedom of entry and exit present in the market.the product has many close substitutes, although there is no perfect substitute. Differentiated Products to Serve an Identical End-Market: Each company produces and sells a differentiated product, but the function of the product is comparable, i.e.High Number of Market Participants: In monopolistic competition, there are many independent companies involved that actively compete within the market.The most common characteristics of monopolistic competition are as follows: Therefore, in an environment of monopolistic competition, market participants compete on quality, price, and marketing. the benefit received by the customer, there are still attributes that cause the products to be somewhat differentiated. While the products might be largely the same in their intended purpose, i.e. sellers) offering a differentiated product but with a virtually identical utility to the end-user. In the field of economics, monopolistic competition refers to a market structure that entails many companies (i.e. What is the Definition of Monopolistic Competition? In economics, monopolistic competition is considered to be a hybrid between a monopoly and perfect competition, as the market structure blends the characteristics of each. Monopolistic Competition is defined as an environment wherein the market participants sell differentiated products, yet serve the same end market.
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