Monopolistic competition
Many sellers of differentiated products with low barriers to entry, giving each a little pricing power. Entry still competes long-run economic profit away to zero.
Where you will meet it
Monopolistic competition appears in 2 learning outcomes on the CFA syllabus. A few of them:
- Contrast monopoly, perfect competition and the market structures in between
“Monopolistic competition sits between the two — many sellers, but differentiated products give each a sliver of pricing power.”
- Explain how firms set price and quantity in oligopoly and monopolistic competition
“Firms under monopolistic competition and oligopoly face downward-sloping demand, so each maximises profit by producing where marginal revenue equals marginal cost and then charging the price the demand curve allows at that output.”
See also
Barriers to entry · Economic profit · Pricing power
Practise it
Practise monopolistic competition until it is automatic: questions that explain every wrong option.
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