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Monopolistic Competition 
Monopolistic competition is a market structure that is characterized by (1) many 
sellers; (2) differentiated products; (3) nonprice competition; (4) relatively easy 
entry and exit. It has similarities to both pure competition and oligopoly. 
Monopolistic competition is similar to pure competition in the sense that there 
are many sellers and no strong barriers to entry. Firms can enter and leave 
markets on a regular basis and, indeed, do so. The amount of money required to 
go into business is relatively small, and there are few government regulations 
restricting those wishing to enter a market. In addition, each seller controls such 
a small share of the market that each believes that his or her actions will bring 
no reactions from competitors. Unlike pure competition, however, monopolistic 
competition is characterized by product differentiation and nonprice 
competition. The latter involves efforts to persuade consumers to buy a 
particular product for reasons other 


than price. In fact, product differentiation and nonprice competition are the most 
important characteristics that distinguish monopolistic competition from pure 
competition. Firms operating in markets characterized by monopolistic 
competition do extensive advertising in an effort to convince consumers that 
their products are better than those of their competitors. Often there is little or 
no actual difference in the products, but advertising campaigns lead at least 
some consumers to believe otherwise. 
Most retail stores in medium-to-large-sized cities fall into the category of 
monopolistic competition. They advertise heavily and try to convince 
consumers 
that their products and services are superior to those of their competitors. A 
store may emphasize such things as convenient location, ample parking space, 
courteous service, and a large selection of merchandise. 
Ex. 1. From two columns choose the words with similar meaning and arrange 
them in pairs
.
 
1) to produce 
a) customer 
2) wage 
b) to manufacture 
3) limitation 
c) salary 
4) to persuade 
d) to convince 
5) pure 
e) clean 
6) competition 
f) restriction 
7) substantial 
g) rivalry 
8) advertising 
h) considerable 
9) share 
i) publicity 
10) premium 
j) portion 
11) to consume 
k) reward 
12) buyer 
l) to use up 
13) artificial 
m) fake 
Ex. 2. Expand the sentences. 
1. Market structure is determined primarily by… . 
2. Economists usually group market structures into four basic categories: … . 
3. The main characteristics of the pure competition are … . 


4. Monopoly is the extreme opposite of pure competition and has the following 
characteristics: .… . 
5. Oligopoly has the following characteristics: …. . 
6. Monopolistic competition is a market structure that is characterized by … . 
Ex. 3. Answer the following questions, using the text. 
1. What are the four characteristics of pure competition? Does pure competition 
exist? 
2. What problems would exist in a purely competitive economy? 
3. Describe four characteristics of monopoly. 
4. Identify four characteristics of oligopoly. What is meant by “mutual 
interdependence”? 
Describe nonprice competition. 
5. What are the four characteristics of monopolistic competition? In what 
ways is monopolistic competition similar to oligopoly? In what ways is it 
similar to pure competition? 

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