1. Many Sellers: There are many sellers in monopolistic competitive market. A single seller is not big enough to influence the market. Each one may to a certain extent follow an independent policy in price and output matters without disturbing others. There is no interdependence between the sellers., therefore it is possible for an individual firm pursue an independent course of action. The impact of such actions is not seriously felt by the competitors.
2. Close Substitute Products : Products sold by sellers in monopolistic competition are close substitutes. Soaps and Garments are examples where there are many close substitutes for any given brand of Product. However they are not perfect substitutes as in Perfect competition. Being close substitutes the cross elasticity of demand is high.
3. Selling Costs: Firms in a monopolistically competitive market promote sales by incurring selling cost. Selling cost includes all types of costs incurred to promote sales. Selling cost is usually incurred in the form of advertisement., TV, Broadcast, Hoardings, Press, Exhibitions, window advertising, gifts of some other products along with main products, free samples etc. Additional discount offered to the retailers is another form of selling costs. Such discounts are incentives to the retailers to promote that Product. Selling cost tries to influence consumers’ demand and promote Sales.
4. Free Entry and Exit: A Business enterprise is free to enter the Market i.e to produce a product which is usually a close substitute of existing products. Entry of new enterprise is not restricted through Government policies or any other business . Similarly there are no restrictions if a firm wants to leave the market for any reason. Excess profits by the existing firms will attract more firms to the market and a loss will compel them to leave the industry or group. Free entry and exit will enable the remaining firms earn only normal profit in the long term.
5. Nature of Demand : If the ‘Demand’ for products of a firm is downwards then they can sell more by reducing the prices. Demand for products sold by monopolistically competitive firms is elastic. There are no perfect substitutes for the products as in Perfect competition or . It is also unlike monopoly where there are no close substitutes for the products at all..
Summing up in monopolistic competition situation due to availability of large number of close substitutes the demand is more elastic It means the market prices for identical products can vary depending upon Market forces prevailing at any given period of time.