Monopolistic Competition

 Monopolistic Competition refers to the market situation in which there is a keen competition, but neither perfect nor pure, among a group of a large number of small producers or suppliers having some degree of monopoly because of the differentiation of their products. Thus, we can say that monopolistic competition (or imperfect competition) is a mixture of competition and a certain degree of monopoly, on the basis of a correct appraisal of the market situation.

According to Prof. Lerner – “The condition of imperfect competition arises when a seller has to face the falling demand curve.”

Characteristics

Important characteristics of monopolistic competition are as follows:

1. Less Number of Buyers and Sellers:

In this market neither buyers nor sellers are too many as under perfect competition nor there is only one seller as under monopoly. Mostly, it is a situation in between. Every producer for his produced commodity has some special buyers. Every consumer and seller can influence demand and supply in the market.

2. Difference in the Quality and Shape of the Goods:

Although the commodities produced by different producers can serve as perfect substitutes to those produced by others, yet they are different in colour, form, packing, design, name etc. So there is product differentiation in the market.

3. Lack of Knowledge on the Part of Consumers:

Neither consumers nor sellers have full knowledge of market conditions, so there is international difference in the price of goods from those of others.

4. High Transportation Cost:

In this high transportation cost play an important role in order to create discrimination among commodities. Similar goods because of different transport costs are bought and sold at different prices.

5. Advertisement:

Here, advertisement plays an important role because buyers are influenced to prefer by advertisement, which plays upon their mind and makes them the product of one firm to those of another. Through advertisement, they are brought to his notice through radio, television and other audio-visual aids in a more pleasing and more forceful manner. Thus, rival firms compete against each other in quantity, in facilities as well as in price.

6. Ignorance of the Buyers:

There are some people who think that high priced goods will be better and of higher quality. So, they avoid buying low priced goods.

7. Differences in the Establishment of Industry:

In the imperfect competitive market, there is neither freedom of entry or exit as is under perfect competition nor there is perfect control as in monopoly but there are some restrictions on the entry of industry only.