Monopolistic competition: This type of market structure is like a combination of monopoly and perfect competition. It is a more practical type of market structure as compared to the perfect competition.
Following are the features of monopolistic competition:
A fairly large number of buyers and sellers: The number of buyers and sellers of a commodity is fairly large. However, the number is not as large as that in the case of perfect competition. Since there are a large number of buyers and sellers, any individual buyer or any individual seller cannot influence the market price of the commodity.
Product Differentiation: ln monopolistic competition, the products sold by the sellers are not perfect substitutes of each other i.e., they are not exactly identical in terms of shape, size, colour, weight, etc. However, the products are close substitutes of each other. The products are differentiated on the basis of shape, size, colour, packing, branding, etc. This is known as product differentiation.
Free entry and exit: There are no legal, natural, commercial or technological barriers to entry and exit of firms. New firms are free to enter the market and existing firms are free to leave the market whenever they want.
Presence of Selling Costs (High Advertisement Cost): Since the products of sellers are close substitutes to each other, sellers have to incur heavy advertisement costs (selling cost) to promote their differentiated products. This helps in increasing 'brand loyalty' and improves the market share of the firm.
Non-price competition: The firms under this form of market structure do not get into price wars. They indulge in a non-price competition like offering better after sale service, heavy promotion, running contests etc.
No perfect knowledge of market conditions: The buyers and sellers don't have perfect knowledge about available products and prevailing market prices.
The imperfect mobility of factors of production - Factors of production are not perfectly mobile in this type of market structure.
Following are the features of monopolistic competition:
A fairly large number of buyers and sellers: The number of buyers and sellers of a commodity is fairly large. However, the number is not as large as that in the case of perfect competition. Since there are a large number of buyers and sellers, any individual buyer or any individual seller cannot influence the market price of the commodity.
Product Differentiation: ln monopolistic competition, the products sold by the sellers are not perfect substitutes of each other i.e., they are not exactly identical in terms of shape, size, colour, weight, etc. However, the products are close substitutes of each other. The products are differentiated on the basis of shape, size, colour, packing, branding, etc. This is known as product differentiation.
Free entry and exit: There are no legal, natural, commercial or technological barriers to entry and exit of firms. New firms are free to enter the market and existing firms are free to leave the market whenever they want.
Presence of Selling Costs (High Advertisement Cost): Since the products of sellers are close substitutes to each other, sellers have to incur heavy advertisement costs (selling cost) to promote their differentiated products. This helps in increasing 'brand loyalty' and improves the market share of the firm.
Non-price competition: The firms under this form of market structure do not get into price wars. They indulge in a non-price competition like offering better after sale service, heavy promotion, running contests etc.
No perfect knowledge of market conditions: The buyers and sellers don't have perfect knowledge about available products and prevailing market prices.
The imperfect mobility of factors of production - Factors of production are not perfectly mobile in this type of market structure.
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