Meaning of monopolistic competition.

Historical perspective: There existed only two forms of market in late 1920s and early 1930s - perfect competition and monopoly. There was an opposition against the use of both perfect competition and monopoly as the analytical models of business firms and market behavior.Piero Staff was among the first the limitations of competition or monopoly. He was followed by other writers.Hotelling remarked – “Between the perfect competition and monopoly theory lie the actual cases.” Similarly; Zeuthen observed – “Neither monopoly nor competition are absolute nor the theories about them deal only with the outer margins of reality. Which is always to be sought between remarked?”

In the late 1920s and early 1930s, he economists began turning their attention to the middle ground between monopoly and perfect competition. The most notable achievements were made by two economists working independently. The American economist Edward H. Chamberlain ‘The theory of monopolistic competition and Imperfect competition in the same year, 1933. These economists thus gave a new shape to the market structure, price determination and business organization.

The terms imperfect competition and monopoly are used in the same sense, but a distinction exists between them.

The perfect competition is not found in reality, nor is monopoly found in reality. The reality is, however, found these two extremes. The market where neither perfect competition nor monopoly exist is called imperfect competition. The two imperfect conditions are to be fulfilled for perfect competition:

A) Large number of firms

B) Homogeneous product

If one or both of these conditions are unfulfilled, it is imperfect competition. Hence, imperfect competition is a wide term which includes a variety of market firms, viz, monopolistic competition, oligopoly, duopoly and even monopoly.