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What is Monopolistic/Imperfect Competition?

Definition:

Monopolistic/Imperfect competition as the name signifies is a blend of monopoly and competition. It is a systematic and realistic theory of price analysis in this imperfectly competitive world.

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".

In the words of J.S. Bain:

"Monopolistic competition is found in the industry where there is a large number of small sellers selling differentiated but close substitute products".

Oligopoly:

In case the number of firms is small and the action taken by one firm is followed by rival firms in the market, it is then to be studied within a separate framework of monopolistic competition called Oligopoly.

According to Chamberlin, if all the firms produce identical goods, they can be easily categorized and called an industry.

In case, the number of firms is fairly large say 20, 40, 60 and they produce some what similar goods, it is then useful to group these firms together and call them a 'product group' of industry. We in this chapter, however, use 'product group' of 'industry' in the same sense to avoid complication.

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., 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., 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.