The main
characteristic or features of monopolistic competition
are as under:
(i) A fairly large
number of sellers: The number of firms in
monopolistic competition is fairly large. Each firm produces
or sells a close substitute for the product of other firms in
the product group or industry. .Product differentiation is thus
the hallmark of monopolistic competition.
(ii)
Differentiation in products: Under monopolistic competition,
the firms sell differentiated products. Product differentiation
may be real or imaginary. Real differentiation is done through
differences in the materials used, design, color etc. Imaginary
differences may be created through advertisement, brand name,
trade marks etc. The firms producing similar products in .this
imperfectly competitive world cannot raise the price of product
much higher than their rivals. If they do so, they will lose
much of their sale, but not all the sale. In case, they lower
the price, the total sale can be increased to a certain extent.
How much will the sale increase or decrease by lowering or
raising the price will depend upon the product differentiation
of the different firms.
If the product of the
various firms are very close substitutes of one another and no
imaginary or real difference exists in the mind of the buyers,
then a slight rise or fall in the price of the product of one
firm will appreciably decrease or increase the demand for the
product. If the product of one firm differs from that of other
firm, (though the difference may be an imaginary one) a slight
rise in the price of the product of one firm will not drive away
all its customers. A few faithless buyers may be attracted by
the low price of the other rival product but not all the buyers.
(iii)
Advertisement and propaganda: Another very important
characteristic of the monopolistic competition is that each firm
tries to create difference in its product from the other by
advertising, propaganda, attractive packing, nice smile, etc.,
etc. When it succeeds in its object, the firm occupies almost
the position of a monopolist. It is, thus, in a position to
raise-the price of the product without losing its customers.
(iv) Nature of
demand curve: Since the existence of close substitutes
limits the
monopoly power, the demand curve faced by a monopolistically
competitive firm is fairly elastic. The precise degree of
elasticity will however, depend upon the number of firms in the
group product or industry. If the number of firms is fairly
large and the product of each firm
