Monopolistic competition is a market structure where the number of firms is large, there is free entry and exit of firms and the firms produce differentiated products
Three features of monopolistic competition are:
(i) Large Number of sellers and buyers: There is a large number of sellers and buyers in the market. A large number of sellers and buyers implies that no individual seller or buyer can exercise any big influence on the price of the product on its own.
(ii) Firms produce differentiated products: Products sold by different sellers are closely differentiated from each other. It may be on account of different brand names, packing, shape, the friendly behaviour of the seller or any other consideration. These differentiated products are close substitutes of each other. This feature makes monopolistic competition different from perfect competition.
Firms use the differentiation to tell buyers why their products are better in quality and competitive in price as compared to other competitors
(iii) Freedom of entry and exit to firms: There is freedom of the firms to enter into the industry or leave the industry. This ensures that there are neither super-normal profits nor any losses to a firm in the long run