Question

Show that monopolistic competition is blending of monopoly and competition.

Answer 1

Monopolistic competition is called a blending of monopoly and competition because it has features of both market structures. The main reason for this is product differentiation. 

In monopolistic competition:

• Many firms sell similar but not identical products.
• Each firm offers a differentiated product (different in taste, packaging, quality, etc.), which gives it some monopoly power.
• For example, Colgate has control over its brand of toothpaste, just like a monopoly.

At the same time:

• All these products are close substitutes (like Pepsodent, Close-Up, Vicco), so firms face competition from others.
• Customers can switch to other brands, which keeps competitive pressure in the market.

Monopolistic competition is a mix of monopoly and competition. Each firm has a monopoly over its brand, but still faces competition from rival firms. Hence, it is rightly called a blending of monopoly and competition.