Monopolistic Competition

Monopolistic Competition is “An industry [that] is…made up of a large number of small firms who produce goods which are only slightly different from that of all other sellers. It is similar to perfect competition with freedom of entry and exit for firms and any supernormal profits earned in the short-run will be competed away in the long-run as new firms enter the industry and compete away the profits.” (triple A).  The main properties of this type of economy are as follows:  a few large firms with many smaller firms; similar products with a varying factor that sets your product apart from the others; loyal consumers (i.e. someone may only drink coca-cola and not pepsi); independence, thus they do not have to worry about their rivals.  In our groups presentation, we will be using coffee as an example of a product that would thrive in this type of environment.  Coffee is an extremely normal product, but with just a little addition it becomes a product to which people become very loyal (i.e. Starbucks).  Many food companies and other brand name products thrive in these economies.