Is demand elastic or inelastic
Large numbers of sellers exist in the market. Individually they have a small share in the market.
In a monopolistically competitive market, the products of different sellers are differentiated on the basis of brands. Product differentiation gives rise to an element of monopoly to the producer over the competing product. As such the producer of the competing brand can increase the price of his product knowing fully well that his brand-loyal customers are not going to leave him. This is possible only because the products have no perfect substitutes. Since however all the brands are of close substitutes to one another, the seller will lose some of his customers to his competitors. Thus the market is a mix of monopoly and perfect competition.
New firms are free to enter the market and existing firms are free to quit at any given period of time.
Sellers attempt to promote their products not by cutting prices but by incurring high expenditure on publicity and advertisement and other sale promoting techniques. This type of competition is known as non-price competition.
Monopolistic competition is best suitable in an open field provided by government where several competitors are allowed to operate and tend to have exclusive possession or control over trade.But here,one competitor will have to definitely emerge and have control of the trade over the others.
Reason been that, it may have found out that the other competitors are not quite too capable to have better potential(s) to catch up with him.Hence, it takes control over price,advertisement,promotions,and what have you to dictate the market terms wholly on its own thus keeping the others quite too dormant.
Monopolistic competion still retains many of the features of perfect competition - unrestricted entry to and exit from th emarket, good(but not perfect) communication and transport conditions, motivation by economic considerations only, and the perception by the buyers that the products of the various firms are good substitute to each other.
1) Many sellers
2) Product differentiation
3) Selling cost is unique
4) Free entry and exit in market
5) Two dimensional competition.
Large number of firms
free entry and exit of firms
nature of demand curve
The important property of monopolistic competition is this that no of firm is more than monopoly but less than perfect completion. Normally the number of firm ranges between 14 to 80.
Every monopolist has differentiated in his product. Such differentiation may be real as well as imaginary. The real differentiation may be due to difference material while the imaginary differentiation is attributed to difference in style of the goods like attractive packing and lucrative advertisement better sales man ship and difference in locality.
The concert of product differ nation was firstly introduced by Sraffas. However it was chamberlain who elaborated the implication of the product differentiation of and pricing and output decision as well as for the selling strategy of the firm.
Thus Chamberlain introduced two additional policy variables theory in the firm
The product itself and selling activities. Hence the demand curve for the product of the individual firm includes these diminution it shows the quantities demanded for a particular style associated services offered with specific strategy the demand curve will shift if the style services or the strategy changes competitors change there price output their services and policies taste , income and prices.
Monopolistic competition is a form of market in which there are many producers and consumers while no company has total control over the market. Secondly, consumers perceive that the products available in the market are different on the basis of non-price factors. There are very few entry barriers and exit barriers in this form of market. Moreover, producers also have a high degree of control over the prices in this market. Examples of such markets include restaurants, clothes, shoes and cereals etc.
Large no.of independent sellers, buyers in d market.
The relative mkt shares of all sellers are insignificant and more or less equal.
Product differentiation,many firm,free entry & exit long run,market power,buyers & sellers have perfect information
Characteristics of imperfect competitive
Relatively free entry and exit
Each firm may have a tiny 'monopoly' because of the differentiation of their product
Many buyers and sellers
Firm has some control over price
Examples – restaurants, professions – solicitors, etc., building firms – plasterers, plumbers, etc.