Conditions of Monopolistic Competition In Economics:
Following are the important conditions of monopolistic competition.
Sellers & buyers: – there are a large number of buyers and sellers in the monopolistic market. Generally, the number of firms is within 25-50.
Small share of supply: – each firm acts independently and produces a small share of the total output.
Differentiated products: – the product of each firm can be differentiated by trade mark or packing.
Entry of new firms: – in a monopolistic competition, new firms can easily enter into the market.
Inefficient firms in the market: – inefficient firms also live in the market side by side & sell the defective products.
Control over price: – a firm has only limited control over the price of the product according to its supply.
Elastic demand curve: – the demand curve of the firm is negatively sloped, and because there are many firms in the market which are producing a similar commodity. Therefore, the demand for products of each firm is elastic.
Advertising: – in a monopolistic competition, firm spends a lot of money on advertisement, to attract the consumers.
Stiff competition: – there is a stiff competition among the firms for the sale of a particular brand, not only in price but also in quantity of the product.