Monopolistic Competition

Characteristics of monopolistic competition:

1 A large number of potential buyers and sellers.

2 The products offered by each seller are close substitutes, each tries to differentiate its products.

3 Entry into and exit from the market are possible with fairly low costs.

4 Firms have some pricing power.

5 Suppliers differentiate their products through advertising and other non-price strategies.

The most distinctive factor: product differentiation.

The extent to which the producer is successful in product differentiation determines pricing power in the market.