One of the characteristics of monopolistic competition is that
(a)there is mobility of factors of production(b)no single seller dominates the market(c)the firms are price-takers(d)consumers have perfect knowledge of price
One of the characteristics of monopolistic competition is that
What is Monopolistic Competition
Monopolistic competition is a middle ground between monopoly and perfect competition this is because each firm in this market structure enjoys some sort of monopoly over their products as no other products is identical to it but their other products like it.
for example. Cokacola is similar to Pepsi in the sense that they are both regarded as soft drinks in Nigeria but in true sense, they are different in identity. hence they are substitutes but not perfect substitutes.
Hint
The term was first used in the 1930s by economists Edward Chamberlain and Joan Robinson, to describe the competition between firms with similar, but not identical, product offerings.
Price Making VS Price Making
As in a monopoly, firms in monopolistic competition are price makers because they reserve some monopoly power in them. However, their nominal ability to set prices is effectively disturbed by the fact that the demand for their products is highly price-elastic(meaning that consumers respond sharply to change in price because their is a substitute)
So to exercise their price making power,the firms must be able to differentiate their products from those of their competitors This can be done by increasing the quality of their product and creating heavy awareness about the key changes.
Dominance of a Seller
Monopolistic competition implies that there are enough firms in the industry so that one firm's decision does not require other companies to change their behavior.
Barriers to entry and exit in a monopolistic competitive industry are low, and the decisions of any one firm do not directly affect those of its competitors. Monopolistic competition is closely related to the business strategy of brand differentiation.
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