Why is it relatively easy for firms to enter and leave a monopolistically competitive market?

Entry into monopolistically competitive industries is relatively easy because monopolistic competitors are small businesses. Therefore, economies of scale are few and capital requirements are low. On the other hand, financial barriers can arise from the need to develop and announce that it differs from the products of rivals.

Monopolistic competition implies small pieces in the market, because each company has a comparatively small percentage of the total market and, consequently, its control over the market price is limited.

In addition, monopolistic competition involves independent action. There is no feeling of interdependence between them since there are numerous companies in an industry. In other words, each company can determine its own pricing policy without considering the possible reactions of rival companies.

In conclusion, the exit of competitive industries monopolistically is relatively easy in comparison with oligopolies or pure monopoly, since nothing prevents an unprofitable monopoly competitor from making a closing sale of business and closure.

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