Monopolistic competition
Monopolistic competition is a model with many suppliers offering differentiated products and relatively accessible entry and exit. Differentiation gives each firm some influence over the price of its own offer, but close alternatives constrain it. In the conventional long-run model, entry erodes excess economic profit. The term combines competition between many firms with limited market power over a differentiated offering.
Worked example
A hypothetical market has many small cafés competing through location, menu and service. Each can differentiate its offer, but customers can switch to alternatives and new cafés may enter.
Common mistake
Do not confuse monopolistic competition with a single-supplier monopoly or assume differentiation removes competitive pressure. The long-run model is not a guarantee of identical actual outcomes.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | BT | Direct | September 2026–June 2027 |
| FIA | FBT | Direct | September 2026–June 2027 |