Question

State with reason whether you agree or disagree with the following statement:

Selling cost is the only feature of monopolistic competition.

Answer 1

I disagree with the given statement.

Reason:

In addition to selling cost, monopolistic competition has many other features as follows:

1. Fairly large number of sellers: There are a fairly large number of sellers in a monopolistic competition. However, it is not as large as the number of sellers in perfect competition.
2. Fairly large number of buyers: There are a fairly large number of buyers in the monopolistic competition.
3. Product differentiation: Product differentiation is the main feature of monopolistic competition. It means each product in this market is different from other products in some way or the other.
4. Free entry and exit: New firms are free to enter the market if there is profit. Similarly, they can leave the market, if they find it difficult to survive.
5. Close substitutes: The goods sold by different sellers in monopolistic competition are similar with few differentiating qualities. Hence, products sold in this market are close substitutes.
6. Concept of group: Under monopolistic competition, Prof. Chamberlin introduced the concept of ‘Group’ in place of industry. Industry means a number of firms producing ‘identical’ products. A ‘Group’ means a number of firms producing ‘differentiated’ products which are closely related.