(i) Product differentiation: It is a distinct feature of monopolistic competition. A product is often differentiated by way of trademarks and brand names. The differentiated products are close substitutes of each other like Colgate and closeup toothpaste. Because of product differentiation, each firm can influence its price. So that, each firm has a partial control over price of its product.
(ii) Free entry or exit of firms: Firms are free to enter the industry or leave it. However, new firms have no absolute freedom of entry into industry. Products of some firms may be legally patented. New firms cannot produce those products,
e.g. no rival firm can produce or sell a patented item like Woodland shoes.
(iii) Selling Cost: Another feature of the monopolistic competition is that every firm tries to promote its product by different types of expenditures. Advertisement is the most important constituent of the selling cost which affects demand as well as cost of the product. The main purpose of the monopolist is to earn maximum profits; therefore, he adjusts this type of expenditure accordingly.
(iv) Lack of Perfect Knowledge: The buyers and sellers do not have perfect knowledge of the market. There are innumerable products each being a close substitute of the other. The buyers do not know about all these products, their qualities and prices.
Therefore, so many buyers purchase a product out of a few varieties which are offered for sale near the home. Sometimes a buyer knows about a particular commodity where it is available at low price.
(v) Less Mobility: Under monopolistic competition both the factors of production as well as goods and services are not perfectly mobile.
