Monopolistic competition


When we speak of monopolistic competition, we refer to the competition that exists between the different monopolies, it is a type of competition in which there is a fairly significant number of producers who act within the market without a dominant control being given by them. they. It is frequently observed in product markets that we normally observe in supermarkets, all of them with specific and particular characteristics that make them different from each other, but with a certain similarity to be able to enter into competition with other producers.

What is monopolistic competition?

The monopolistic competition is a kind of competition in which producers sell products in a market, but the products are not equal, but differentiated by the brand , the quality or location . Within monopolistic competition, a company that makes products takes the prices of others as data and ignores the impact of its own prices on the prices of other companies.


This competition is not necessarily because of prices, but rather because of the quality of the product , the service provided, the location, the publicity that is given and the types of packaging. Each seller who offers a product has the ability and advantage to raise or lower prices . Within a monopoly market, companies behave and have monopoly characteristics , including the use of market power to achieve large profits. In theory, companies that compete monopolistically maximize their profits, since they are small, and the entrepreneurs and owners actively participate in all the management of their businesses. In the short term, they have excellent benefits.

  • Characteristics of monopolistic competition
  • Advantages of monopolistic competition
  • Disadvantages of monopolistic competition
  • Examples of monopolistic competition

Characteristics of monopolistic competition

  • The companies that participate in it tend to behave like monopolies.
  • Producers compete on the basis of the quality of their product, its price and the marketing that is developed to get the product on the market.
  • They attach great importance to quality , design and the ease for the customer to access the product.
  • In them, there are many producers and consumers , and none of them manages to have total control over the market price.
  • Consumers know and perceive that there are price differences between the products of the competitors.
  • Producers fail to have full control over the market price.
  • The  monopolistic competition  occurs mainly when there are many sellers in the market, where there is little interdependence between different companies to price products where pricing is difficult.
  • The main tool of this type of company is the differentiation that exists between the products .
  • It has a constantly changing range of products that are in competition within the market.
  • By having low costs in capital requirements, companies can enter or exit the market very easily.
  • The quality that is offered in terms of the product can be based on its function, materials, its design and the labor that is needed to manufacture the product.
  • Companies manage to have control over the price of the product, but are at the same time limited by the large number of similar products on the market.

Advantages of monopolistic competition

  • There are no defined barriers for the entry of products to the market .
  • The different products are responsible for creating diversity , choice and utility .
  • The market is more efficient than the monopoly , but less efficient than the competition . However, they can be dynamically efficient, innovative in terms of new production processes or new products.
  • By having greater ease of entry and exit , these companies enter a market where current companies obtain economic benefits and have the opportunity to exit it when there is a loss of money.

Disadvantages of monopolistic competition

  • A lot of waste is generated that is not necessary, for example, over packaging .
  • The advertising sometimes is regarded as an unnecessary expense, as sometimes is for informational purposes only and not persuasive .
  • In the long term, companies are seen as less effective and inefficient.
  • These types of companies can make excess of their economic benefits, causing their profit, after some time, to be zero.
  • The demand is very sensitive to price changes, this because of the different range of offerings that are similar.
  • The amount of economic investment is greater than in a normal company, this because they must have greater competition, and more money is spent developing products that are different and in excessive advertising expenses.

Examples of monopolistic competition

A very common example of monopolistic competition  is for example restaurants . They are responsible for serving different dishes or menus at different prices, providing different types of local utilities . Furniture stores are responsible for selling different types of furniture made of different materials. The retailers selling clothes have a wide range of prices. Another example that we can mention is books, since their prices vary depending on the topics and the audience that you want to reach.

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