There are different branda of mobile phones sold in india, at a competitive price. What form of market it is ? Analyse its features.

Monopolistic competition is a market situation in which there are many firms which sell closely related but differentiated products. 

It is characterized by the following features:

i. A large number of firms – The number of firms selling similar product is fairly large but not as large as in perfect competition.

Implication – The firms are in a position to influence the price of their products marginally due to their brand names.

ii. product differentiation – Differentiated products are variants of a given commodity. They are closely related but are not homogenous. They can be differentiated on the basis of brand name, shape, colour, quality, quantity, type of service and workmanship, etc. For instance, beauty soaps like LUX, PEARS, DOVE, etc.

implication – This gives rise to monopoly power of a firm.

iii. Free entry and exit of firms – Buyers and sellers are free to enter or leave the market at any time they like.

Implication – It ensures that no firm earns above normal/abnormal profits because new firms enter the market induced by high profits of the existing firms while, firms can exit the market as soon as they start incurring losses.

iv. Negatively sloped demand curve – The demand (AR) curve facing a firm in monopolistic competition is negatively sloped as it firm can sell more only by lowering the price.

v. selling costs/advertisement costs – Selling costs are the expenses which are incurred for promoting sales or for inducing customers to buy the goods of a particular brand.