what is monopolistic competition 
monopolistic competition exists when many companies offer competing products or services that are similar but not perfect substitutes the barriers to entry in a monopolistically competitive industry are low and the decisions of any one firm do not directly affect its competitors competing companies differentiate themselves based on pricing and marketing decisions investopedia joules garciaunderstanding monopolistic competitionmonopolistic competition exists along the spectrum between a complete monopoly and perfect competition combining elements from each restaurants hair salons household items and clothing are examples of industries with monopolistic competition items like dish soap or hamburgers are sold marketed and priced by many competing companies demand is highly elastic for goods and services of the competing companies and pricing is often a key strategy for these competitors one company may opt to lower prices and sacrifice a higher profit margin hoping for higher sales another may raise its price and use packaging or marketing that suggests better quality or sophistication companies often use distinct marketing strategies and branding to distinguish their products because the products may all serve the same purpose the average consumer often does not know the precise differences between the various products or how to determine what a fair price may be characteristics of monopolistic competitionin monopolistic competition one firm does not monopolize the market rather multiple companies can enter the market and all can compete for market share companies do not need to consider how their decisions influence competitors and each firm can operate without fear of increasing competition competing companies differentiate their similar products with distinct marketing strategies brand names and different quality levels companies in monopolistic competition act as price makers and set prices for goods and services firms in monopolistic competition can raise or lower prices without inciting a price war often found in oligopolies demand is highly elastic in monopolistic competition and very responsive to price changes consumers will change from one brand name to another for items like laundry detergent based solely on price increases advantages and disadvantages of monopolistic competitionmonopolistic competition provides both benefits and pitfalls for companies and consumers few barriers to entry for new companiesvariety of choices for consumerscompany decision making power for prices and marketingconsistent quality of product for consumersmany competitors limits access to economies of scaleinefficient company spending on marketing packaging and advertisingtoo many choices for consumers means extra research requiredmisleading advertising or imperfect information for consumers