Table 116

Monopolistic Competition


Number of actual or potential competitors

Many sellers

Few sellers whose decisions are directly related to those of competitors

Product differentiation

Consumers perceive differences among the products of various competitors

High or low, depending on entry and exit conditions


Low-cost information on price and product quality

Restricted access to price and product-quality information; cost and other data are often proprietary

High entry or exit barriers because of economies of scale, capital requirements, advertising, research and development costs, or other factors

Potential for economic (above-normal) profits in both short and long run

Automobiles, aluminum, soft drinks, investment banking, longdistance telephone service, pharmaceuticals

Conditions of entry and exit Easy entry and exit


Profit potential

Economic (above-normal) profits in short run only; normal profit in long run Clothing, consumer financial services, professional services, restaurants tically competitive markets, only difficult-to-enter oligopoly markets hold the potential for long-lasting above-normal returns.

In sum, firms in imperfectly competitive markets have the potential to earn economic profits in the long run only to the extent that they impart a valuable degree of uniqueness to the goods or services provided. Success, measured in terms of above-normal rates of return, requires a comparative advantage in production, distribution, or marketing that cannot easily be copied. That such success is difficult to achieve and is often rather fleeting is obvious when one considers the most profitable companies in America.

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