Monopolistic competition
Monopolistic competition combines elements of perfect competition and monopoly: many firms selling slightly differentiated products, each firm having some market power over its own product, but easy entry and exit preventing supernormal profit in the long run.
Real World
The UK coffee shop market — with Costa, Caffè Nero, independent cafés, and hundreds of local rivals — illustrates monopolistic competition: each differentiates through branding and atmosphere yet no single chain dominates entry, keeping long-run profits normal.
Exam Focus
For 'assess' questions, show that product differentiation creates allocative inefficiency (P > MC) but dynamic efficiency through innovation as a counterpoint.
How well did you know this?