This pricing scheme exists when an industry has many firms, each producing only a small share of the output demand:

Question

Quizplus · Accepted Answer

Monopolistic competition refers to a market structure with many small firms producing differentiated products. This leads to a situation where each firm has a limited degree of market power and faces a downward-sloping demand curve. As a result, firms in monopolistic competition engage in non-price competition, such as advertising or product differentiation, to attract consumers. This leads to a range of prices in the market, and the absence of a clear price leader. This is in contrast to a monopoly, where a single firm has significant market power and can set prices, or an oligopoly, where a few large firms dominate the market and can collude to set prices.

This Pricing Scheme Exists When an Industry Has Many Firms