VIJAY Monopolistic competition is a market situation in which there are relatively large number of small firms which produce

or sell similar but not identical commodities to the customers. According to Leftwitch: "Monopolistic competition is a market situation in which there are many sellers of a particular product, but the product of each seller is in some way differentiated in the minds of consumers from the product of every other seller TAPESH- Examples of Monopolistic Competition: For example, a firm supplies branded good 'Lux Soap' in the market. There are many other firms in the market which sell similar soaps (not identical) with different brand names like Rexona, Palm Rose, etc. The firm supplying 'Lux Soap' enjoys a monopoly position over the sale of its own product. It also faces competition from firms selling similar products.

Same is the case with many other firms in the market like plywood manufacturing, jewellery making, wood furniture, book stores, departmental stores, repair services of all kinds, professional services of doctors, technicians, etc. These firms and others which have an element of monopoly power and also face competition over the sale of product or service in the market are called monopolistically competitive firms. characterstics (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.

(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 advertisement, etc., etc. (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. (v) Freedom of entry and exit of firms: The entry of new firms in the monopolistically competition industry is relatively easy. There are no barriers of the new firm to enter the product group or leave the industry in the long run. (vi) Sales efforts: With heterogeneous products, the sale of the products by the firms can no longer be taken for granted sale depends upon sale efforts.no example

(vii) Non-price competition: In monopolistic competition, the firms make every effort to win over the customers. Other than price cutting, the firms may offer after sale service, a gift scheme, discount not declared in the price list etc.

Example VIJAY- The classic example is the restaurant industry. Monopolistic competition is a situation where the product can be differentiated to allow the providers that opportunity to charge premium pricing for their product, which has imperfect substitutes. In the case of pizza, pizza restaurants compete on taste or style and develop a population of people who prefer their pizza, but would switch if the price was too high, yet will willingly pay a premium over what they

could get at a cheaper competitor down the street. TAPESH -The soap industry is likely the second most used example in that for the most part, soap is soap, but the soap industry has diverged in a way so that people have preferential favorites that are relatively identical substitutes for one another. These markets only exist for products that are differentiable. Gasoline, corn, iron ore aren't that easy to differentiate, so result in more markets of perfect competition.

TAPESH-In many U.S. markets, producers practice product differentiation by altering the physical composition of products, using special packaging, or simply claiming to have superior products based on brand images or advertising. Toothpastes, toilet papers, computer software and operating systems are examples of differentiated products.

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TAPESH-The difference between the short-run and the long-run in a monopolistically competitive market is that in the long-run new firms can enter the market, which is especially likely if firms are earning positive economic profits in the short-run. New firms will be attracted to these profit opportunities and will choose to enter the market in the long-run. In contrast to a monopolistic market, no barriers to entry exist in a monopolistically competitive market; hence, it is quite easy for new firms to enter the market in the long-run.