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Monopolistic Competition'
Characterizes an industry in which many firms offer products or services that are similar, but not perfect substitutes. Barriers to entry and exit in the industry are low, and the decisions of any one firm do not directly affect those of its competitors.
Monopolistic competition can bring the following advantages:
There are no significant barriers to entry; therefore markets are relatively contestable.
Differentiation creates diversity, choice and utility.
The market is more efficient than monopoly but less efficient than perfect competition - less allocatively and less productively efficient. However, they may be dynamically efficient, innovative in terms of new production processes or new products. For example, retailers often constantly have to develop new ways to attract and retain local custom.
Disadvantages of monopolistic competition
The potential disadvantages associated with monopolistic competition, including:
Some differentiation does not create utility but generates unnecessary waste, such as excess packaging. Advertising may also be considered wasteful, though most is informative rather than persuasive.
lydiajane74 answered the question on October 11, 2017 at 12:16
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