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The video rental market can be described as late as a monopolistically competitive market as a...

The video rental market can be described as late as a monopolistically competitive market as a result of the economic profit earned by the first video rental outlets
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The monopolistically competitive market is characterized by a large number of relatively small firms and buyers. The products are not exactly the same in the market hence the different prices. The firm will determine a price and output level that gets them the most profit. As products are similar and not identical, a firm can take initiative to set a unique price. New firms will necessarily enter a monopolistically competitive market when price exceeds average total cost. Consequently there are no economic profits in long-run equilibrium.

The video rental market there are many firms, each firm sells the same videos, thus this market is a perfectly-competitive one; and not the monopolistically competitive market. Moreover a higher supply of video rental outlets along with the increased availability of substitutes such as cable channels can crash the rental rates.

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