Defining Monopolistic Competition

When a monopolistic competitive market exists, it means that there are many firms offering similar but differentiated products. Monopolistic markets include most retailers from clothing to gasoline and also includes most firms that provide a service that it specifically directed at home owners. For example, plumbing and electrical companies. On occasion this type of market may include large manufacturers as well such as furniture or textiles.

Four key factors must be present in order for this type of market to exist.

1. There must be many different firms that are all working independently of one another. Costs of production within each firm are also very similar.
2. There must be freedom to enter the industry. This does not mean that there are no costs involved however, but that no significant barriers will prevent a firm from entering into the market. This could include for example, a patent obtained by another firm that grants them exclusive rights for a period of time.
3. All firms have some control over the price but generally speaking there is minimal price competition between firms. Often there is an unwritten understanding as to what prices shall be and instead firms try to compete with their differentiated or "better" products.
4. Each firm sells a differentiated product.

The table below outlines the differences between small and large companies that are all part of the monopolistic market.

Size:	Small Company	Medium Company	Large Company
Features:	Bump to Baby Boutique (Municipal)	Toys r' Us (National)	Walmart (International)
Differentiated Products	More current and local fads and fashion trends. More personalized service.	Lower quality of customer service. More brand name products. More luxury.	Even more recognized brands offered at reduced prices.
Control Over Price	Some	Some	Some
Mass Advertising	Word of Mouth, Social Media, Mail-outs (fliers)	Word of Mouth, Social Media, Newspaper & Magazine Ads, Radio	Internet, Newspaper & Magazine Ads, Television, Billboards,
Brand Name Goods	Few	Some	Many
Service Quality	Excellent	Fair	Poor