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Economics explained


Market structures

Monopolistic competition - short run

Monopolistic competition - short run

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Monopolistic competition is an interesting form of competition found in certain industries that feature characteristics of monopolies and competitive firms

Monopolistic competition has the following characteristics:

There are few barriers to entry into the market and it is easy for firms to recoup their capital expenditure on exit from the market.

Firms have some influence on the market price and are therefore price makers.

Monopolistic competition arises when the market comprises many producers who tend to use product differentiation to distinguish themselves from others.

Although their products may be very similar, because producers differentiate their products they are able to create a short-term 'monopoly', as customers see their product as unique. Therefore, for monopolistic competition to exist, consumers must perceive differences in the products offered by different firms.

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