Economics Monopolistic Competition Questions
Market power in monopolistic competition refers to the ability of a firm to influence the market price of its product or service. Unlike perfect competition, where firms are price takers, firms in monopolistic competition have some degree of control over the price they charge due to product differentiation. This means that each firm produces a slightly different product, which gives them a certain level of market power as consumers may have preferences for specific brands or features.
By offering differentiated products, firms can create a perceived uniqueness and establish a loyal customer base, allowing them to charge higher prices compared to their competitors. However, this market power is limited as there are still substitutes available in the market, and consumers have the option to switch to other similar products if the price becomes too high.
Overall, market power in monopolistic competition allows firms to have some control over pricing and differentiate their products, but it is constrained by the presence of substitutes and the competitive nature of the market.