Definition of Monopolistic competition:
Monopolistic competition characterizes an industry in which many firms offer products or services that are similar, but not perfect substitutes. 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.
Market situation midway between the extremes of perfect competition and monopoly, and displaying features of the both. In such situations firms are free to enter a highly competitive market where several competitors offer products that are close (but not perfect) substitutes and, therefore, prices are at the level of average costs (a feature of perfect competition). Also, some consumers have a preference for one product over another that is strong enough to make them keep buying it even when its price increases, thus giving its producer a small amount of market power (a feature of monopoly). Monopolistic situation is a common situation in all free markets.
Monopolistic competition is a middle ground between monopoly and perfect competition (a purely theoretical state), and combines elements of each. All firms in monopolistic competition have the same, relatively low degree of market power; they are all price makers. In the long run, demand is highly elastic, meaning that it is sensitive to price changes. In the short run, economic profit is positive, but it approaches zero in the long run. Firms in monopolistic competition tend to advertise heavily.
How to use Monopolistic competition in a sentence?
- Firms in monopolistic competition typically try to differentiate their product in order to achieve in order to capture above market returns.
- A good goal to have for your business is to run at a monopolistic competition so that you have the best of both strategies.
- Unlike a monopoly, these firms have little power to set curtail supply or raise prices to increase profits.
- Heavy advertising and marketing is common among firms in monopolistic competition and some economists criticize this as wasteful.
- Monopolistic competition occurs when an industry has many firms offering products that are similar but not identical.
- Sometimes when you cant get a perfect competition or a monopoly the best you can settle for is being in the middle in monopolistic competition .
- The essence of a dynamically active market is the ability to produce a product that people may love above all other products available ; monopolistic competition .
Meaning of Monopolistic competition & Monopolistic competition Definition