Advantages and Disadvantages of Monopolistic Competition

In perfect competition buyer is the king as the seller do not have any pricing power while in case of monopoly seller is the king as he has complete control over the price of a product. While both the situation are extremes and that is the reason why both the situations seldom exists, in practical life in between situation exists which is called monopolistic competition where there many sellers who sell slightly differentiated products which gives sellers slight control over price. Let’s look at some of the advantages and disadvantages of monopolistic competition –

Advantages of monopolistic competition

  1. In case of monopolistic competition buyers get plenty of options due to differentiated products as every product has some additional feature which is not the case with perfect competition where sellers sell homogeneous products or in monopoly where sellers do not bother to add new features to product as there is no competition.
  2. Another advantage of monopolistic competition is that since different companies are selling differentiated products they tend to advertise about it through various channels of communication which make customers more aware about the various products and their features which in turn helps the customers in making informed decision by comparing the features of various products.
  3. It helps in innovation because the only thing which will help the company in surviving in case of monopolistic competition is to constantly add new features to product and hence in a way one can say that monopolistic competition forces the companies to invest in research and development so that the company can produce better quality product at cheaper rates than their competitor.

Disadvantages of monopolistic competition

  1. The biggest disadvantage of monopolistic competition is that due to differentiated products chances are companies may charge more than fair price from the consumers for extra features in product because unlike perfect competition where there is no scope for companies to charge higher price as companies sell homogeneous products.
  2. Another disadvantage of monopolistic competition is that companies in order to differentiate their products from other companies add irrelevant features and do not concentrate on improving the basic product which in turn results in consumers paying extra for added features but in reality that feature of product does not result in increase in consumer surplus.
  3. In monopolistic competition companies spend too much money on advertising as it is the most important part as far as monopolistic competition is concerned which in turn results in increase in expenses for the company and company in turn passes this increased cost to consumer in the form of higher price for the product.

As one can see from the above that monopolistic competition has many advantages as well as disadvantages, however in real or practical life monopolistic market structure is present in the majority of markets all over the world.

2 comments… add one
  • Florence

    Very resourceful thank you..thumbs up

  • Robert

    Helped a lot with my economic project. Thank you.

Leave a Comment


Related pages


explain privatisationinventory turnover ratio interpretationadvantages and disadvantages of borrowing moneywhat is skimming pricing in marketingadvantages to socialismautocratic advantagesfunctional organizational structure advantages and disadvantageswhat is autocratic leadershiplifo method advantages and disadvantagesdebit card disadvantagessecuritizing receivableshow to issue junk bondswhat does the law of diminishing marginal utility statebalance sheet horizontal analysissocial media advertising advantages and disadvantagescibil full formindustrial goods examplesmerit and demerits of internetexamples of income effectadvantages and disadvantages of pricingnatural resources advantages and disadvantagesadjusting unearned revenuedisadvantage of barteringunqualified report auditincome effect and substitution effect examplescomplementary goods economics definitiondistinguish between explicit and implicit costsfree market economy advantages and disadvantages pdfwhat is the meaning of consignordifference between durable and nondurable goodsdebentures advantagesaccounting concept of materialitywhat is skimming pricingbarter trade systemdirect expenses meaningmarket skimming pricingdifference between inferior and superior goodshorizontal merger and acquisitionwhat does consumptive meanadvantages and disadvantages of industrialisationconglomerate definition economicsassumption of diminishing marginal utilityadvantages and disadvantages of financial statementsdefinition of drawer drawee and payeeadvantages of socialist economyweaknesses of a command economydifference between freight and cartagewhat are derivative marketsdiminishing law of returnscomplementary goods economics definitiondiscounted cash flow advantageswhat are the differences between horizontal analysis and vertical analysisadvantages of junk bondswhat are the problems of barter systemdefine market skimmingmixed economics definitionfull form of fmcgadvantages and disadvantages of social marketingindirect quotationadvantages and disadvantages of traditional bankingcharacteristics of monopolistic competition marketpros of a command economymonopolistic companyhow to record unearned revenueadvance from customer journal entrylet's learn punjabidisadvantages of monopolymarket skimming pricingdisadvantages and advantages of command economyadvantages of discounted cash flowcompare and contrast capitalist and socialist economiesprepaid rent journal entryadvantages and disadvantages of bank accountsadvantages and disadvantages of authoritarian leadershiptrade discount accounting entrylocal bill discountingnon cumulative preference share