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competition is a market structure in which many firms sell products that are
similar but not identical (our mankiw book)

monopolistic competition barriers to entry and exit are really low and all
firms have the same, relatively low degree of market power; they are all price
makers. In the long run, demand is highly elastic, meaning that it is sensitive
to price changes. In the short run, economic profit is positive, but it
approaches zero in the long run. Firms in monopolistic competition tend to
advertise heavily to differentiate their products from
one another.  (

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Just like in the perfectly competitive market, there
are a large number of

sellers and a large enough number of customers so that
no individual can affect the overall market. The monopolistic competitors
product is differentiated only slightly from the products produced by its
rivals. That is why the firms separately do not have the full control over the


If to consider the fact that the products of different
producers are slightly different and not perfect substitutes to each other, an
average costumer can choose one exact product out of the large number given. If
this product is considered as the best one – a customer can pay a little more for
it, but if the price will be too high in comparison to other products, as far
that there are a lot of substitutes from other producers, a customer can easily
switch to another one.


It is a very common situation when there is no actual
difference between products in monopolistic competitive market, but producers
need to differentiate their products. As a rule, they use the advertisement,
visual attraction or special distinctive features.

It can be different celebrities working in an
advertising campaign or following the modern trends. In monopolistic
competition products are different till costumers consider them to be
different, even if there is no actual or visible difference between them.



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