Monoplistic

Monopolistic
Competition
What is Monopolistic Competition?
Monopolistic competition exists when many • Monopolistic competition occurs when many
companies offer competing products or services companies offer products that are similar but
that are similar, but not perfect, substitutes. not identical.
• Firms in monopolistic competition
The barriers to entry in a monopolistic differentiate their products through pricing
competitive industry are low, and the decisions and marketing strategies.
of any one firm do not directly affect its • Barriers to entry, or the costs or other
competitors. The competing companies obstacles that prevent new competitors from
differentiate themselves based on pricing and entering an industry, are low in monopolistic
marketing decisions. competition.

Demand is highly elastic for goods
Understanding Monopolistic
and services of the competing
companies and pricing is often a key
Competition
strategy for these competitors. One
company may opt to lower prices
and sacrifice a higher profit margin,
Monopolistic competition exists hoping for higher sales. Another may
between a monopoly and perfect raise its price and use packaging or
competition, combines elements of marketing that suggests better quality
each, and includes companies with or sophistication.
similar, but not identical, product Companies often use distinct
offerings. marketing strategies and branding to
Restaurants, hair salons, household
distinguish their products. Because
items, and clothing are examples of
the products all serve the same
industries with monopolistic
purpose, the average consumer often
competition. Items like dish soap or
does not know the precise
hamburgers are sold, marketed, and
differences between the various
priced by many competing
products, or how to determine what a
LOW
Characteristics BARRIERS TO
In monopolistic competition, one firm
of Monopolistic
ENTRY
does not monopolize the market and
multiple companies can enter the
market and all can compete for a
Competition
market share. Companies do not need
to consider how their decisions
PRODUCT influence competitors so each firm can DEMAND

operate without fear of raising
DIFFERENTIATI competition. ELASTICITY
Demand is highly elastic in
Competing companies
ON
differentiate their similar
monopolistic competition and
PRICING very responsive to price
products with distinct
Companies in monopolistic changes. Consumers will change
marketing strategies, brand
competition act as price makers from one brand name to another
names, and different quality
for items like laundry detergent
levels. and set prices for goods and
based solely on price increases.
services. Firms in monopolistic
competition can raise or lower
prices without inciting a price war,
often found in oligopolies.
Monopolistic competition provides both benefits
and pitfalls for companies and consumers.
Pros Cons Advantages and

Disadvantages
• Few barriers to entry for • Many competitors limits access
new companies to economies of scale
• Variety of choices for • Inefficient company spending on
consumers
marketing, packaging and
advertising
of Monopolistic
• Company
Competition
• Too many choices for
decision-making power
consumers means extra research
for prices and marketing for consumers
• Consistent quality of • Misleading advertising or
product for consumers imperfect information for
consumers
What Is the Difference Between
Monopolistic Competition and Perfect
Competition?
In perfect competition, the product offered by competitors is the same
item. If one competitor increases its price, it will lose all of its market
share to the other companies based on market supply and demand forces,
where prices are not set by companies and sellers accept the pricing
determined by market activity.
In monopolistic competition, supply and demand forces do not dictate

pricing. Firms are selling similar, yet distinct products, so firms determine
the pricing. Product differentiation is the key feature of monopolistic
competition, where products are marketed by quality or brand. Demand
is highly elastic, and any change in pricing can cause demand to shift from
What Industry Is an Example of
Monopolistic Competition?
Monopolistic competition is present in restaurants like Burger King and
McDonald's. Both are fast food chains that target a similar market and offer
similar products and services. These two companies are actively competing
with one another, and seek to differentiate themselves through brand
recognition, price, and by offering different food and drink packages.
What Is the Difference Between Monopolistic
Competition and a Monopoly?
A monopoly is when a single company dominates an

industry and can set prices for its product without fear
of competition. Monopolies limit consumer choices and
control production quantity and quality. Monopolistic
competitive companies must compete with others,
restricting their ability to substantially raise prices
without affecting demand and providing a range of
product choices for consumers. Monopolistic
competition is more common than monopolies, which
are discouraged in free-market nations.
The Main Point
Monopolistic competition exists when many
companies offer competitive products or services
that are similar, but not exact substitutes. Hair
salons and clothing are examples of industries
with monopolistic competition. Pricing and
marketing are key strategies for competing
companies and often rely on branding or discount
pricing strategies to increase market share.
THANK
YOU!

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Monopolistic

that are similar, but not perfect, substitutes. not identical.

• Firms in monopolistic competition

The barriers to entry in a monopolistic differentiate their products through pricing

marketing decisions. competition.

PRODUCT influence competitors so each firm can DEMAND

Pros Cons Advantages and

• Variety of choices for • Inefficient company spending on

In monopolistic competition, supply and demand forces do not dictate

A monopoly is when a single company dominates an

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