Question

Explain any three features of a monopolistic market.

Answer 1

1. A Large Number of Small Sellers and Buyers: In monopolistic competition, the number of sellers is sufficiently large but not as large as under perfect competition. The sellers are not mutually dependent upon one another. Each of them acts independently and produces an insignificant portion of the total output. Firms use differentiation to tell the buyers why their products are better in quality and competitive in price as compared to their competitors.
2. Product Differentiation: This is a unique feature of monopolistic competition. Products of various firms are similar in nature but are differentiated in terms of brand name, shape and size, colour, quality, type of service, etc. For example, different brands of toothpaste vary on the basis of colour, taste, fluoride, packaging etc. The essence of product differentiation is to create an image in the minds of the buyers that the product sold by one seller is different to the product sold by another seller. Products are very similar to each other but not identical.
3. Non-price Competition: Besides price competition, there also exists non-price competition under monopolistic competition. Rival firms compete with one another without changing the price of their products. Product variation and selling costs are the two main forms of non-price competition. Expenditures incurred on advertisement, etc., are known as selling costs. Selling costs are increased (i) to promote sales and (ii) to make buyers know about the features of the product.