Explain the implications of the following features of monopolistic competition.
(i) Product differentiation
(ii) Free entry or exit of firms
(i) Product differentiation It is a distinct feature of monopolistic competition. A product is often differentiated by way of trademarks and brand names. The differentiated products are close substitutes of each other like Colgate and closeup toothpaste.
Because of product differentiation, each firm can influence its price. So that, each firm has a partial control over price of its product.
(ii) Free entry or exit of firms : Firms are free to enter the industry or leave it. However, new firms have no absolute freedom of entry into industry. Products of some firms may be legally patented. New firms cannot produce those products, e.g. no rival firm can produce or sell a patented item like Woodland shoes.