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Monopolistic competition.

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Monopolistic competition.

Monopolistic competition is a market structure with a combination of monopoly elements and competitive market elements. The structure has freedom of entrance and exit, with the alternative of companies differentiating their goods and services. Actions of one entity do not affect the decisions of the competitors in the market directly.

The answer.

  1. In monopolistic competition, the opening to trade leads to lower prices more product variety and more businesses domestically. Since the firms in a monopolistic market provide a close range of product similarity, there is a high rate of demand elasticity. Thus, demand is very responsive to the shifts in prices, therefore, if, say, coke sells its products at an increased price of 20%, the consumers will shift to taking Pepsi; thus, the firms hold lower costs.

One characteristic of a monopolistic market is the freedom of entrants. Thus, there are many companies in the market, producing almost similar products. Many firms provide many products that are not identical but are differentiated. These are products that are different in some way; they seem to differ although they serve similar purposes. Differentiation of products happen in several ways; it could be through, the products’ quality, the size, brand, style, or convenience.

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