Which characteristic defines monopolistic competition?

Monopolistic competition is characterized by a market structure where various firms sell products that are similar but not identical. This differentiation allows each company to have some degree of market power, meaning they can influence prices to a certain extent. The products within this type of market might serve similar purposes or meet similar needs, but they have distinct attributes or branding that set them apart from competitors. This unique positioning makes it possible for firms to attract specific consumer segments without facing direct price competition.

In contrast, high barriers to entry for new firms is more indicative of monopolies or oligopolies, while homogeneous products are characteristics of perfect competition where all firms sell identical goods. A market dominated by one firm aligns more closely with a monopoly, where a single entity controls the entire supply of a product, leaving no room for competition. Thus, the defining feature of monopolistic competition is indeed the presence of firms selling products that are similar yet differentiated, which is what sets this market structure apart from others.