What is Monopolistic Competition?
Monopolistic competition is an essential concept for business owners to understand, as it can have serious implications for the long-term viability of your business. If youre operating in an industry of monopolistic competition, it can be hard to turn a profit in the long run. Here, well take a close look at monopolistic competition, and why it matters to you and your business. The definition of monopolistic competition is that your industry or market is full of competitors. Each of your competitors offers a product or service similar to yours, or even identical. Barriers to entry are very low, but you risk going out of business if you cant differentiate yourself from the competition. Whether you know it or not, youre likely already operating under conditions of monopolistic competition. Characteristics of monopolistic competition  A number of characteristics define the conditions of monopolistic competition. These include:  Many companies targeting the same customer base  Companies all produce similar but differentiated products  Low barriers to entry (and exit)  Companies have little power to raise profits by increasing prices  Competition is based on product quality, price and marketing  Companies can be profitable in the short term, but find it harder to secure long-term profitability  Examples of monopolistic competition  When we consider the characteristics of monopolistic competition, we can see that it is rife in every towns average retail district. Some of the more common examples include:  Clothing and accessories  Restaurants, bars and hotels  Sporting goods  Consumer electronics  Consumer services such as nail salons and hairdressers  Every example has its fair share of success stories. But many businesses risk being forced into obscurity by competitors that, for whatever reason, have made a bigger impression on customers. Thriving in a monopolistically competitive market  The majority of small to medium-sized businesses operate in conditions of monopolistic competition. If this includes you, it should be clearer than ever that you cant afford to rest on your laurels. Statistically speaking, the odds are against you. And the longer you remain in business, the more chance there is for your margins to erode as hungry new competitors emerge on the market. Because of the low barriers to entry, monopolistic competition means that there is always a revolving door of competitors, any one of which would be only too happy to relieve you of your customers. This is why you need to know your USP, the proverbial special sauce that loyal customers can get only from you. To thrive in the long term in these conditions, you will need to:  Ensure that competitive analysis is an ongoing process that drives your decision-making  Maintain a strong brand identity thats aligned with what your customers want and expect from your products  Make sure your standards of customer service remain high, and that your employees are well trained and empowered to deliver excellence  Find ways to drive down sundry expenses without compromising the quality of products or services that you offer  Ensure that your pricing remains competitive, without decimating your profit margins  Never lose sight of the customer experience  We can help  If youre interested in finding out more about monopolistic competition, brand differentiation and staying ahead of the pack, then get in touch with the financial experts at GoCardless. Find out how GoCardless can help you with ad hoc payments or recurring payments.