What type of competition is described by firms selling similar but not identical products?

The scenario in which firms are selling similar but not identical products is characteristic of monopolistic competition. In this market structure, numerous sellers offer products that are differentiated enough to stand apart from one another, even though they serve a similar purpose.

Examples of differentiation can include variations in quality, features, branding, or customer service. This allows firms to have some degree of market power, as consumers may develop preferences for certain brands or product variations, leading to a downward-sloping demand curve for each firm’s product, which is a key feature of monopolistic competition.

In contrast, perfect competition involves homogeneous products, meaning that buyers perceive no difference between the offerings from different sellers. Oligopoly is characterized by a few firms that dominate the market and may offer similar or identical products; however, they are more interdependent in pricing and strategy. Monopoly describes a market with a single seller who has significant control over pricing and supply, offering a unique product without direct competition. Thus, monopolistic competition is the appropriate classification for the situation described in the question.