What is meant by "monopolistic competition"?

What is meant by "monopolistic competition"?

• A. A market with a single seller
• B. A market structure with many firms offering identical products
• C. A market with many firms selling similar but not identical products
• D. A market where products are highly regulated

Answer: (C)

Monopolistic competition refers to a market structure characterized by many firms competing against each other while each firm sells products that are similar but not identical. This differentiation can arise from various factors such as branding, quality, features, and customer service, allowing firms to have some degree of market power.

In a monopolistically competitive market, although there are many firms, each one offers a product that consumers perceive as different. This differentiation is crucial because it enables firms to compete on factors beyond just price, such as promoting their unique attributes, which can lead to brand loyalty among consumers.

This concept is distinct from pure competition, where all firms offer identical products, and from a monopoly, where a single seller dominates. Monopolistic competition strikes a balance between these extremes, resulting in a market environment where innovation and marketing can play significant roles in a firm's success.