In which market structure do firms have some control over pricing due to product differentiation?

Firms operate in monopolistic competition when they have some control over pricing due to product differentiation. In this market structure, many firms sell products that are similar but not identical, allowing them to differentiate based on various attributes such as quality, features, branding, or customer service. This differentiation grants firms a degree of market power, enabling them to set prices above marginal cost, unlike in pure competition where firms are price takers due to the homogeneity of products.

In monopolistic competition, each firm faces a downward-sloping demand curve, indicating that they can increase their prices without losing all their customers, as their products are viewed as distinct by consumers. This contrasts with other market structures. For instance, in pure competition, firms cannot influence the market price due to the identical nature of their products. In oligopoly, a few firms dominate the market and may engage in strategic pricing, but it is the product differentiation found in monopolistic competition that allows for the most flexibility in individual pricing strategies. Monopoly allows a single firm to set prices without competition, but it doesn’t involve product differentiation among multiple firms. Thus, the characteristics of monopolistic competition specifically highlight the control over pricing linked to product differentiation.