Top 5 Features of Monopolistic Competition | Market Situation

The following points highlight the top five features of Monopolistic Competition.

The features are: 1. Existence of Many Firms 2. Large Number of Sellers 3. Product Differentiation 4. Free Entry or Exit of Firms 5. Independent Price Policy.

Monopolistic Competition Feature # 1. Existence of Many Firms:

Under this the numbers of firms are more. They produce only a portion of the total production, therefore they have no complete control over the price.

There is no secret agreement between the firms.

Monopolistic Competition Feature # 2. Large Number of Sellers:

In this the number of sellers is large. But none controls a major portion of the total output. No seller by changing its price output policy can have any perceptible effect on the sales of others and in turn be influenced by them.

Monopolistic Competition Feature # 3. Product Differentiation:

“Product differentiation means that product are different in some ways, but not altogether so”. — Stonier and Hague

A general class of product is differentiated if any significant basis exists for distinguishing the goods or services of one seller from those of another. Such a basis of differentiation may be real or imaginary, but so long as it is of any importance to buyers, it leads to its preference over another product.

The goods are heterogeneous rather than homogeneous so that each firm has an absolute monopoly in the production and sale of a differentiated product.

Monopolistic Competition Feature # 4. Free Entry or Exit of Firms:

In this competition there is freedom of entry and exit of firms. Here the firms are of small size and capable of producing close substitutes make it possible for them to leave or enter the industry in the long run. In fact, product differentiation tends to increase rather than reduce the entry of new firms, as each firm produces a distinct product from the other.

Monopolistic Competition Feature # 5. Independent Price Policy:

Under this every firm has got its own price policy. If a firm changes the price of his product, it has not much effect over the price of the commodity because other firms do not change the price accordingly. Further, the numbers of firms are more, so the change has got negligible effect.

To conclude—it can be said—”Monopolistic Competition is the least imperfect from imperfect competition.”