Chapter 37 Monopolistic competition Monopolistic competition is defined as a situation of imperfect competition with some important features: (a) the products sold are differentiated; (b) firms themselves set the price of these goods; (c) the number of sellers is large and each firm disregards the effects of its price decisions on the actions of its competitors; (d) entry is unrestricted and proceeds until profits are reduced to zero or the smallest possible number consistent with the fact that the number of firms is an integer. The chapter discusses that the theory of monopolistic competition poses important and difficult conceptual problems. It focuses on models with a generally large number of price setters and indicates in the conclusion a number of alternative presentations. It introduces a basic model and studies problems of existence of an equilibrium and endogenous product differentiation and finally discusses macroeconomic applications.