Monopolistic Competition

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Definition of 'Monopolistic Competition'

Monopolistic competition is a market structure in which there are many sellers, each of which has a small market share. This means that each seller has some control over the price of their product, but not as much as a monopolist would. Monopolistic competition is often found in markets for consumer goods, such as food, clothing, and household appliances.

In a monopolistically competitive market, sellers compete on a variety of factors, including price, quality, and service. They may also compete by advertising their products or by offering discounts. However, because each seller has a small market share, they cannot raise prices too high without losing customers to their competitors.

Monopolistic competition can lead to a variety of outcomes for consumers. On the one hand, it can lead to lower prices and more choice than would be found in a monopoly. On the other hand, it can also lead to higher prices and less innovation than would be found in a perfectly competitive market.

The degree of competition in a monopolistically competitive market depends on a number of factors, including the number of sellers, the similarity of their products, and the ease with which new sellers can enter the market.

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