Ace the CMA 2025 Challenge – Unlock Your Accounting Superpowers!

Monopolistic competition is characterized by relatively easy entry into the market, which allows new firms to enter and compete with existing firms. This low barrier to entry is crucial because it leads to a dynamic marketplace where firms can innovate and offer differentiated products. The ease of entry encourages competition and helps maintain a degree of consumer choice, as existing firms cannot easily maintain excessive market power due to the threat of new entrants.

In this market structure, there are many firms competing, but they offer products that are differentiated rather than identical. This differentiation means that while firms have some degree of pricing power, it is not absolute, as competitors will also respond to changes in price. The presence of many firms prevents any single firm from dominating the market, leading to a scenario where consumers benefit from various choices based on their preferences. Thus, the characteristic of relatively easy entry into the market aligns well with the defining features of monopolistic competition.