Monopolistic Competition

‘Monopolistic competition’ as the name suggests is a market situation where both monopoly and competitive elements are present. Monopolistic competition is virtually same as perfect competitive elements are present. Monopolistic competition all firms produce homogeneous products. But under monopolistic competition firms produce differentiated products. That means the product of one firm is different from the product of any other firm in the industry in some respect. The products are differentiated through trade marks, packaging, brands, colours etc. Thus similar products are available under different brand names, Buyers prefer one brand to another. The preference for a particular brand may be real or imaginary. It is this preference of the buyer which is he ‘source of monopoly power’ for the firm producing it.

Under monopolistic competition, the products are close substitutes of each other. Consumers can easily substitute the product of one firm for another. This ‘easy substitution’ checks the monopoly power of a firm.