Monopolistic competition is a market structure characterized by many firms competing with slightly differentiated products. Each firm has some degree of market power, allowing them to set prices above marginal cost. This leads to a variety of choices for consumers, as products are not perfect substitutes. In this type of competition, firms engage in non-price competition, such as advertising and branding, to attract customers. While firms can earn short-term profits, the entry of new competitors typically drives profits to zero in the long run, resulting in a balance where firms earn just enough to cover their costs.