MONOPOLISTIC COMPETITION

 Monopolistic competition is a market structure where the elements of both perfect competition and monopoly are combined. It is a market structure in which a large number of sellers sell differentiated products which are close substitutes of each other. The main features of monopolistic competition are:

·        *    Product Differentiation: Firms sell the products that are different in physical qualitites, taste, selling      services etc.

·       *    Large number of sellers: The number of sellers is large but not as large as in perfect competition.         That is why monopolistic firms have some control over the price.

·      *   Free entry and exit: The firms are free to enter the group if there is scope of earning excess profits        and they are also free to leave the group if they incur losses in the long run.

·   * Selling cost: Chamberlin has introduced selling cost as one of the strategic variables in the            monopolistic competition.

·       *  Downward slopping demand curve: Since the monopolistic firms have some control in price level,         the firms demand curve is downward slopping but it is highly elastic.