This market structure has aspects of both monopoly and competition, as the term monopolistic competition implies. Monopolistic competition defines a market in which numerous manufacturers provide alternative items but are not perceived as such.
Customers perceive them to be the same. Because various vendors' goods vary slightly— some convenience stores, for example, are closer to you than others—the demand is that each curve is not level, but rather dips downward.
Each supplier wields some influence, above the maximum price it may charge. As a result, the businesses that occupy this market do not price competitive. They are price creators rather than takers, as they would be under ideal competition.
There are also so many merchants that each one gets lost in the throng. In a big urban region, for example, a single restaurant, gas station, drugstore, dry cleaner, or convenience shop may operate independently.
Because there may only be two or three sellers in each market, they keep an eye on one. They are mutually dependent on one another. You'll see why this distinction is important later.
National mass media and news outlets are a prime example of an oligopoly, with the bulk of U.S. media outlets owned by just four corporations: Walt Disney (DIS), Comcast (CMCSA), Viacom CBS (VIAC), and News Corporation (NWSA).
Monopolistic competition is a market system characterized by four major characteristics: a high number of customers and sellers, perfect knowledge, minimal entry, and exit barriers, and items that are similar yet distinct. Non-Price Competition: The basic feature of monopolistic competition is that various enterprises compete with one other without changing the costs of their goods, like in the case of companies manufacturing 'Surf' and 'Ariel.' Monopolistic firms tend to spend a lot of money on advertising. Monopolistic rivalry is a type of competition that defines a variety of sectors that customers are acquainted with on a daily basis. Restaurants, hair salons, clothes, and other businesses are examples.
In perfect competition, the product, such as a bushel of wheat, is a commodity, which means it is the same among producers. In monopolistic competition, the product varies somewhat across suppliers, such as the difference between one rock radio station and another, or one convenience shop and another. Sellers distinguish their items in a variety of ways. There are four fundamental approaches.
The first fundamental approach is product packaging. The most evident distinction between items is in their physical look and characteristics.
Packaging may also help a product stand out in a crowded sector, such as a unique bottle of water (Perrier) or quick soup in a cup (Cup-a-Soup), size, weight, color, taste, texture, and other physical variations appear to be limitless. Shampoos, for example, vary in color, smell, thickness, lathering ability, and packaging design. Certain products cater to dandruff sufferers as well as people with typical, dry hair.
The second fundamental approach is location. Another method of distinction is the number and diversity of locations where a product is available—this is known as spatial differentiation. Considerable items appear to be available everywhere, including online; other products need some searching and travel.
The third fundamental approach is services. Products also differ in terms of the services that come with them. Some items, such as Domino's pizza and Amazon books, are delivered to your door; others, such as software and e-books, are sent to your computer or wirelessly; and still, others are cash and carry.
A well-trained salesperson will show some items. Others are primarily self-service. Some items come with online assistance and toll-free numbers. Others arrive with no assistance at all. Some vendors provide money-back guarantees. Others state, "no refunds." The quality and range of associated services frequently distinguish otherwise similar alternatives.
The fourth and last fundamental approach is a product image. The last way items differ is in the image the manufacturer attempts to create in the mind of the client. Product promotion and advertising are used by manufacturers to build and sustain brand loyalty. Suppliers of athletics, clothes, watches, and cosmetics, for example, frequently pay for endorsements from athletes, fashion models, and other celebrities.
Some manufacturers place a premium on the care and attention to detail that goes into each item. Hastens, a tiny, family-owned Swedish mattress manufacturer, for example, emphasizes the months of effort necessary to handcraft each bed as a means to explain the $60,000 price tag.