A quick summary of4.1.5.4 Monopolistic competition of the AQA A Level Economics specification using the CGP guide, various websites, and class notes.
From the AQA A Level Economics specification:
• The formal diagrammatic analysis of the monopolistically competitive model in the short and lon...
Summary: AQA A-Level Economics - 4.1.5.6 Monopoly and monopoly power
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4.1.5 Market Structures
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4.1.5.4 Monopolistic competition
Monopolistic competition characterizes an industry in which many firms offer products or services
that are similar, but not perfect substitutes. The key features of monopolistic competition are:
Large number of small buyers and sellers with weak market power.
Low (or no) barriers to entry or exit - firms can easily enter and exit the market.
Differentiated goods - all goods must be similar but slightly different making the cross price
elasticity of demand of the goods and services sold high (substitutes).
A monopolistically competitive market has imperfect competition. Firms are short run profit
maximisers.
Imperfect information
Firms in a monopolistically competitive market compete using non-price competition.
Non-price competition involves ways that firms seek to increase sales and attract customers
through methods other than price. Non-price competition can include quality of the
products, unique selling points, superior locations, advertising, loyalty, branding, and after-
sales services.
Examples of monopolistic competition include hairdressers, takeaway, restaurants, and regional
plumbers.
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