Question

What makes it possible to exercise partial control over price? Why is full control over price not possible?

Answer 1

It is through product differentiation that a firm under monpolistic competition exercises partial control over price. Differences in design, colour or even packaging of the product attract buyers to buy a particular product even at a relatively higher price.

Full control over price is ruled out under monopolistic competition, because:

(i) There are many competitors in the market, and

(ii) There is a large number of close substitutes available in the market.