First, do not get "monopoly" confused with "monopolistic competition", as so many people do. The word "competition" implies that the model of monopolistic competition is similar to perfect competition (i.e., competition means there are many sellers); however, the term "monopolistic" also implies that it has some monopoly tendencies, as we will soon see**.
If we think of our line again, measuring "no competition" on one side with "considerable competition" on the other, then monopolistic competition would be closer to perfect competition on that line.
Characteristics of Monopolistic Competition
1. many firms
2. produces a differentiated product
3. few barriers to entry or exit
4. downward-sloping demand curve (like monopoly, but more elastic)
**Since each firm produces a slightly different product from that of their competitors, this model gets the title of "monopolistic competition".
In the real world, this model will describe the behavior of most firms in the economy. Some examples of the types of firms that would be considered monopolistically competitive are:
restaurants
pet stores
lots of retail-type stores
gas stations
banks (think small banks)
law firms
direct-selling consultants
think of mostly small businesses --- sole proprietorships, partnerships, etc.
