Monopolistic Competition Definition

Monopolistic competition is a market structure in which many firms offer similar products or services to consumers. Monopolistic competition contrasts with perfect competition, in which firms offer identical products and services and there is no market power. In monopolistic competition, firms have some market power, but not enough to make prices significantly higher than those of other firms in the same industry. The presence of close substitutes for a firm’s products or services limits the ability of that firm to set prices.