Characteristics of Monopolistic Competition

By definition, Monopolistic competition is “a type of market structure where there are many firms in the market, but each offers a slightly different product. In Economics, it is characterized by Monopolistic competition characteristics which include low barriers to entry and exit, which creates fierce competition” (Boyce, 2021). Below we answer which is a characteristic of monopolistic competition?

The five characteristics of monopolistic competition are as follows:

1. Profit Maximization

Monopolistic firms seek to maximize profits. In economics, this is the point at which marginal cost equals marginal revenue. Thus, the company produces so much that it is unprofitable to produce more. Additional characteristics of Monopolistic competition, show that production will cause losses to the company. So far, the company has benefited from the production of additional trade units.

2. Potential Supernormal Profits in The Short Term

The ability to obtain supernormal benefits in a short period of time. Monopolies can create uncanny advantages if they can capitalize on gaps in the market. For example, you can look at clothes and create new designs that you have never done before. When a company receives good reviews from customers, it is in high demand.

Monopolistic competition characteristics lead to uncanny profits that no other company understands in the short term. They then tried to create a similar product by cutting the profits of the original company.

3. Imperfect Information

Under perfect competition, information is relatively easy for consumers to obtain because all products are identical. At the same time, the cost of obtaining information from the monopoly structure is relatively low, since there is only one company. In contrast Monopolistic competition characteristics show, many companies that engage characteristics of Monopolistic competition in monopolistic competition offer slightly different products, requiring more time and money to gather information. Insurance is a prime example. That is why there are so many comparison sites.

4. Differentiated Products

Companies operating in monopoly markets produce products that are very similar but slightly different in order to increase competitiveness. A good example is the clothing market. There are many different types of clothing, each with a slightly different style. This differentiation can be viewed from four perspectives: physical differentiation, marketing, human capital, and sales.

5. Non-Price Competition

Markets offer slightly different products, so companies compete for the quality of the product/service. This may be due to shorter waiting times or more diligent staff. At the same time, companies will compete on factors other than prices, such as location, brand/advertising, and quality.

Examples of Monopolistic Competition are the following:

Clothing markets

There are numerous clothing producers that have different styles in the clothing market but also dominate the market. At the same time, it is relatively easy to produce clothing with a low entry barrier as noted among characteristics of Monopolistic competition.

Hotels and Pubs

There are thousands of hotels across the country, each with its own regional market power. This is classified as monopolistic competition because many companies offer slightly different experiences. Monopolistic competition characteristics the same time, show the cost of opening a small hotel is relatively low. For example, a business owner may borrow money to buy property but may exit the market relatively easily.

Restaurants

There are many individual restaurants that compete on the basis of minor differences. But they are all competing for the same customer.

Hairdressing

Companies often use quality of service as a differentiator. Many clients return to the same hairdresser.

Soap companies

There are many soap brands, each with a slightly exceptional style and scent. It’s hard to sincerely tell the difference that is why the likes of Dettol claim to ‘kill 99.9% of gems’ and some other different slogans.

Toilet paper

It is a must-have frequently used product that has a huge number of competitors providing different kinds of features, styles, and comfort.

Credit: Paul Boyce – Boyce.com for these soultions to Monopolistic competition characteristics.

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