Definition
- Monopolistic competition
- Monopolistic competition is a market in which many firms compete against each other, each selling a product that is distinctive in some way.
- Not to be confused with: Oligopoly
- Oligopoly is a market in which a small number of large firms have all or most of the sales in an industry.
Example
Can you think of a real UK market for each of the four structures?
Wholesale potatoes, from hundreds of growers whose crops buyers cannot tell apart: perfect competition. High-street hairdressers, each with its own style, prices and loyal customers, and a new one opening every few months: monopolistic competition. Groceries, where a handful of large chains take most of the spending and match each other's price cuts: oligopoly. The mains water supply to a town: monopoly.
Test yourself
What is the difference between monopolistic competition and oligopoly?
Both have firms with some control over price, but monopolistic competition has many small firms and easy entry, oligopoly a few large ones behind high barriers.