Key terms
- 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.
- Oligopoly
- Oligopoly is a market in which a small number of large firms have all or most of the sales in an industry.
A distinctive product gives each firm a small monopoly of its own
Firms make their products different through physical features, location, promises such as free delivery or a reputation for quality, and what buyers believe: many people could not tell common brands of ketchup apart blindfolded, yet hold firm preferences. So each firm has a mini-monopoly on its style or brand, while competing with many close substitutes. It can raise its price without losing every customer, which a perfectly competitive firm cannot, but it loses more than a monopoly would.