A form of imperfect competition is found on a market where the condition of absolute homogenity is NOT met. This market form is called monopolistic competition. It is characterised by the fact that there is a large number of firms on the market, that entry into the market is free, but that the product on the market is not homogeneous. Through theuse of trade marks, appearnace, packaging and for example conditions of sale, sellers differentiate their products. Even products such as sugar and salt are differentiated through this means. This then has the iimplication that competition does not only take place on the basis of prices, but through these other means as well. The sales curve is therefore not perfectly elastic since some buyers will tolerate price increases without shifting their allegiance. The sales curve therefore becomes relatively inelastic where the drop in volume is not as pronounced - the sales curve (income curve), is thus at an angle dropping from left to right on a graphic representation thereof.
C.M. Heydenrych
April 2011