This is a market situation where many firms are selling different commodities to make their goods unique from others. It is an extreme of both perfect market and monopoly. It is a market, where there is a large number of producers dealing in different products or services such that no product of one firm is seen as a perfect substitute for another.
The demand curve slopes downward to the right in monopolistic competition. Firms operate on separate levels and do not influence the price output of the other seller. e.g. Beverages company: Milo, Bournvita, Ovaltine etc.
Characteristics of Monopolistic Market
1. Large number of firms. Many buyers and sellers
2. Differentiated products
3. New firms find it difficult to enter the short run market.
4. Monopolistic market is more realistic than the perfect market or the monopoly.
5. Advertisement, Innovation, and packaging of the commodity in order to obtain competitive differential advantages over others.