What is monopolistic competition?

Monopolistic Competition is a market structure in which many firms sell products that are similar but not identical.

Monopolistic competition is a form of imperfect competition and can be found in many real world markets.

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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.

A market structure in which several or many sellers each produce similar, but slightly differentiated products. Each producer can set its price and quantity without affecting the marketplace as a whole.

The model of monopolistic competition describes a common market structure in which firms have many competitors, but each one sells a slightly different product.