Defining Monopolistic Competition

A monopolistic competition is a market containing a large number of sellers, offering similar products which accounts for approximately half of the economy's total production. Since entry into the market is easily available the demand curve is continuously shifting back, making it extremely competitive and challenging to earn a profit. The seller has limited control over the price of goods sold but can gain more by differentiating their product. This can be attained through physical differences, perceived differences and support services. Sellers in this market have equal opportunities since thorough knowledge of prices, products, and technologies is available to everyone.

Size:	Small Company	Medium Company	Large Company
Features:	Diner Deluxe	The Running Room	The Bay
Differentiated products	Yes. Signature, original dishes are prepared.	Yes. Customised programs are created for clients.	Yes. Brands are sold here that can not be found elsewhere.
Control over price	Limited. Competes with 3 similar establishments within the same block	Limited. Many gyms are offering similar programs.	Limited. Must be closely matched to current brand costs unless they sell something exclusively.
Mass advertising	No. Has become popular by word of mouth and has been featured on the food network.	Yes.	Yes.
Brand name goods	No	Yes	Yes
Level of competition	Very high	Very high	Moderately high
Elasticity of demand	Very elastic	Very elastic	Moderately elastic
Concentration ratios	Very low	Very low	Moderately low

Resources:

Sayre, J.E. & Morris, A.J.  (2009).  Principles of Microeconomics (6th ed.).  Toronto, ON: McGraw-Hill Ryerson.