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Economic Theory

2. Patent rights acquired by a firm for its product.
3. Foreign trade barriers imposed by the government, which prevents
any foreign company to enter the industry.
4. A price policy adopted by the existing firms which prevents new

firms to enter.
Monopolistic Competition. In a monopolistic competitive market the

number of sellers is large but each seller has a product differentiated from
those of his rivals. What one firm produces is not quite like what any other
firm produces. In fact, each firm has a kind of limited monopoly of its own
product and hence the name “monopolistic competition”. The following

are the main features of the monopolistic competitive market:
1. Large number of firms: The number of firms which constitutes an
industry is fairly large.

2. Product Differentiation: Under monopolistic competition each firm
produces a differentiated product. The form or the quality of a product can
be differentiated by using different kinds of raw materials, through
workmanship, color, packing, design, durability, etc. For example,

different firms produce soft drinks like coca cola, limca, sprite, thums up
etc. Though the ingredients are same, products carry a different brand
name.

3. Free Entry and Exit: Firms under monopolistic competition are free
to enter and leave the industry at any time.
4. Individual Pricing by a Firm: In this type of market, every
individual producer has his own independent price policy.

5. Selling Costs: Every firm tries to promote its sales through
expenditure on advertisement and on other promotional activities such as

sales men’s incentives, gifts etc.
6. Under monopolistic competition, both price and non-price
competition prevails.
Oligopoly. Oligopoly is a market structure where there are only a few

producers/sellers of a commodity (but more than two producers)
competing with one another. “Few” means enough number of firms that
can keep watch on the actions of rivals and behave accordingly. A firm

cannot take independent action without thinking of in what way its
opponent firms will react. Precisely, few may mean three or four or twenty
or thirty firms, including some major players while others small producers.
Automobile companies making two-wheelers (Bajaj, Hero Honda, Kinetic,

Yamaha etc.) or four-wheelers (Ambassadar, Maruti, Tata, Mahindra &

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