Firms or producers in monopolistic competition market structure have the freedom to enter and exit the market. In this market structure, there are many firms willing to enter the market either to bring unique product to the market, or to enjoy positive profit. If a firm is not able to pay for its costs can exit the market without undergoing liquidation costs (Stephen & Stuart, 2007).
However, the monopolistically competitive markets have got some market power. A monopolistic seller can increase the product price and fail to loss all his or her buyers (Stephen & Stuart, 2007). A reduction in price by a monopolistic seller may not lead to a serious price war with the other competitors. In this nature of market, there is perfect information of the market. Buyers are much aware of the goods sold in the market (Roger, 2001).
Regarding the decision making process in monopolistic competition market structure, producers are independent in setting the exchange terms for their products. The firms do not consider the ultimate effects of their decision to the rest of competitors (Roger, 2001). The firms make decisions on the assumption that their effect to the overall market is negligible and, they can not alter the market demand (Roger, 2001).
On the other hand, a monopoly market structure is where we have only one seller or producer. In this case the firm is also the industry (Roger, 2001). There are restrictions of entry to monopoly market because of high costs. Other factors that may put barriers to this market could be: social, political, or economic factors (Roger, 2001).
Monopoly exercises capitalism in the market. It has been said that many systems fail to work when they have only one provider of products as they lack incentives to produce or sell products which satisfy the consumer needs. Also, when a firm is given patent rights