Monopolistics competituon and its features

Monopolistic:

 It is a market system where the number of enterprises is large and there is free entry and exit of enterprises, but the commodities manufactured by them are not homogeneous. Such a market system is known as a monopolistic competition.

In a same way it can be also said that
Monopolistic competition is a type of imperfect competition such that there are many producers competing against each other, but selling products that are differentiated from one another (e.g. by branding or quality) and hence are not perfect substitutes.

Important Features of Monopolistic Competition:

1. Large Number of Sellers:

There are large numbers of firms selling closely related, but not homogeneous products. Each firm acts independently and has a limited share of the market. So, an individual firm has limited control over the market price. Large number of firms leads to competition in the market.

2. Product Differentiation:
Each firm is in a position to exercise some degree of monopoly (in spite of large number of sellers) through product differentiation. Product differentiation refers to differentiating the products on the basis of brand, size, colour, shape, etc. The product of a firm is close, but not perfect substitute of other firm.


3. Selling costs:

Under monopolistic competition, products are differentiated and these differences are made known to the buyers through selling costs. Selling costs refer to the expenses incurred on marketing, sales promotion and adver­tisement of the product. Such costs are incurred to persuade the buyers to buy a particular brand of the product in preference to competitor’s brand. Due to this reason, selling costs constitute a substantial part of the total cost under monopolistic competition.

4. Freedom of Entry and Exit:

Under monopolistic competition, firms are free to enter into or exit from the industry at any time they wish. It ensures that there are neither abnormal profits nor any abnormal losses to a firm in the long run. However, it must be noted that entry under monopolistic competition is not as easy and free as under perfect competition.

5. Lack of Perfect Knowledge:

Buyers and sellers do not have perfect knowledge about the market conditions. Selling costs create artificial superiority in the minds of the consumers and it becomes very difficult for a consumer to evaluate different products available in the market. As a result, a particular product (although highly priced) is preferred by the consumers even if other less priced products are of same quality.

7. Non-Price Competition:

In addition to price competition, non-price competition also exists under monopolistic competition. Non-Price Competition refers to competing with other firms by offering free gifts, making favourable credit terms, etc., without changing prices of their own products.