Characteristics of monopolistic competition
1. Many sellers: In monopolistic competition, there are many firms competing against each other in the market.
2. Differentiated products: Each firm produces a slightly different product or service that is unique in some way, giving them a degree of market power.
3. Ease of entry and exit: Firms can easily enter or leave the market without any significant barriers.
4. Non-price competition: Firms compete with each other through product differentiation, branding, advertising, and other marketing strategies, rather than solely on the basis of price.
5. Imperfect information: Consumers may not have complete information about the products or services offered by each firm, making it easier for firms to differentiate their products.
6. Limited market power: While firms in monopolistic competition have some control over their prices, they do not have the same level of market power as firms in a monopoly.
7. Price setting: Firms in monopolistic competition have some control over the price of their products, but they also face competition from other firms that limits their ability to increase prices significantly.
8. Short-run profits: Firms in monopolistic competition may be able to earn economic profits in the short run, but these profits tend to attract new entrants, which eventually erodes profits in the long run.
9. Product differentiation: Firms in monopolistic competition differentiate their products through branding, design, quality, or other factors to distinguish their products from those of their competitors.
10. Inefficient allocation of resources: Because firms in monopolistic competition engage in non-price competition and do not produce at the lowest possible cost, resources may be allocated inefficiently in the market.