Features of monopolistic competition:

1)  Product Differentiation

The theory of monopolistic competition is based on solid empirical fact that there are very few monopolists because there are very few commodities for which close substitutes do not exist. Similarly, there are very few commodities, which are entirely homogeneous.  Consider the market of detergent powders in India. The products of "Ariel and Surf" are not the same entities. Thus, in a sense they have monopoly character because they are the sole supplier of their respective products. However, since their products are close substitute of each other, they share the market of detergent powder.

Thus, in reality products of different producers are heterogeneous. Along with that, products of the same industry are close substitutes of each other. Producers make their products different from others consciously so that their products to remain unique. There are many ways in which products could be differentiated. They might differ according to chemical composition, appearance, brand name, advertising, packing material etc.

2) Industries and Product Groups

In perfect competition, industry was defined as a collection of firms producing a homogeneous product. However, when each product is differentiated, one cannot define an industry by the above definition. We will call the firms producing close substitutes as product groups. For example, firm producing soap, shampoo and cigarette cannot be called industries. 

However, there is a problem in defining a product group. It is not precisely defined when firms enter a product group because the degree of substitutability is a relative concept. Chewing gum could be a substitute for cigarette for those who are trying to quit smoking but firms producing chewing gum would never enter the product groups of cigarette. Similarly, tea and coffee may be close substitutes. However, they do not enter the same product group. According to Chamberlin, 'product groups' should include products, which are close technological and economic substitutes. To him logical substitutes are those products, which can technically cover the same want, and economic substitutes are those products, which satisfy the some want and have similar price structure. An operational definition of product group is that the demand for each single product is highly elastic and it shifts appreciably when the prices of other products in the group change. In other words, products forming the group should have high price and cross elasticities.

3) Free Entry and Exit

Like perfect competition, firms may enter and leave the product group at their will. If the firms in the product group are earning supernormal profit, new firms will enter lured by the profit. Similarly, if existing firms are making looses, firms will quit.

4) Number of Buyers and Sellers

There are a large number of buyers and sellers in a monopolistic completive market

5)  Non-Price Competition  

Since the products are slightly differentiated, in order to increase the demand for their products firms engage themselves in non-price competition, such as advertising or adding up some frills (free gifts etc.).

6)  Independent Behaviour

The economic impact of one firm's decision is spread sufficiently evenly across the entire group so that the effect on any single competitor goes unnoticed. This implies rivalry is missing and competition is impersonal.