Monopolistic Competition Definition:
Monopolistic Competition is defined as a market structure with a large number of firms, low barriers to entry and differentiated products.
Monopolistic Competition Examples & Explanation:
Local restaurants, pubs, hairdressers, and even tutoring businesses tend to fall into the monopolistic competition market structure. These businesses are relatively easy to set-up, meaning they have low barriers to entry. They sell slightly different products to one another (e.g. Irish bar vs Sports bar; Chinese vs Indian takeaway), which gives them some market power to set their own prices. The more differentiated/unique their product is, the less substitutes there are for what they are offering, and the more control they have over prices to maximise profits (imagine takeaway sushi vs Michelin star sushi). Despite they are likely to make supernormal profits in the short-run, more firms will enter into the market in the long-run and compete those profits away by offering more substitute products. This will be due to the ease of entry and high contestability of the market. Monopolistic competition is considered less efficient than perfect competition but also not as inefficient as a monopoly.
Monopolistic Competition Economics Notes with Diagrams
Want a closer look? Download these monopolistic competition notes.
The left video gives an overview into monopolistic competition, the right looks at what happens in the market structure in the long-run.
Monopolistic Competition Multiple Choice Questions (A-Level)
Want a closer look? Download these monopolistic competition multiple choice questions.
Monopolistic Competition Essay Questions (IB)
Want a closer look? Download these monopolistic competition essay questions.