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Monopolistically competitive markets are those in which there are a very large number of small companies all competing for market share. They try to differentiate their products in the minds of consumers so that consumers will buy those products rather than patronizing a competitor. Let us look at a few such industries.
First, small restaurants (as opposed to big chains) are in monopolistic competition. Even very small towns typically have a few restaurants. These restaurants typically compete on the basis of quality and taste. They try to get people to feel that the food at their restaurant is superior to the food at other restaurants.
Second, gas stations are in monopolistic competition. These are not the major oil companies, but the stations themselves which are typically owned by individuals. These gas stations have very little room to compete on price. Therefore, they compete on things like location and on the amenities in their convenience stores.
Finally, the creators of “apps” for mobile phones are in monopolistic competition. There are many of them and they are all competing to develop the next big thing that will sell huge numbers of copies. They are competing based largely on quality.
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