Monopolistic Competition: Meaning and Examples

Monopolistic Competition
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Monopolistic Competition Monopolistic competition refers to a market structure where many organizations are present in an industry. In this regard, those similar companies produce some differentiated products which are identical. In this regard, not a single company enjoys some form of monopolistic tendency because they operate independently without considering what other companies are doing. It is also relevant to note that the market structure demonstrates some form of imperfect competition. Some of the characteristics of monopolistic competition include various organizations competing on product price and quality and how the product is marketed. In addition, monopolistic competition also demonstrates free exit and entry into the industry. Furthermore, such businesses also have businesses that are not price takers. In addition, every business produces some similar but different commodities. The presence of many companies also characterizes monopolistic competition, and there is no single player which dominates the industry.  The Meaning of Monopolistic Competition The monopolistic competition entails a business environment where many businesses provide services and commodities that are similar but imperfect substitutes. In a monopolistic competitive industry, barriers to entry and exit are shallow. In addition, the decisions of a particular business do not necessarily impact those of the competition. Monopolistic competition correlates with the business strategy of differentiating various brands in the industry. When an enterprise has numerous firms or businesses, there are tendencies of having monopolistic competition. In this scenario, most companies offer similar commodities that are not identical. Unlike in a pure monopoly, the businesses have little power to control supply points or increase pricing to raise profitability. Many companies in monopolistic competition usually differentiate their commodities to achieve maximum returns. In addition, heavy marketing and advertising are common elements for many businesses in monopolistic competition, which various economists often criticize because it is wasteful.  It is relevant to understand the difference between monopolistic competition, perfect competition, and monopoly. There is a combination of the three elements in a purely theoretical scenario to know how monopolistic tendencies work. The monopolistic competition first gained prominence in the 1930s because it was applied to describe the competition between similar businesses. However, such companies were not identical and did not have similar product offerings. In many cases of monopolistic competition, market power is usually meager because of comparable players in the market. In addition, most of the businesses in monopolistic competition are price makers, which means they can determine their pricing modules. In a monopolistic company, demand is usually elastic, particularly in the long run. However, in the short-term, economic profits are generally positive but become zero in the long run. Many businesses in a monopolistic competition environment usually conduct some heavy advertising.    Examples ...