Product differentiation is a situation where different producers in the market try to differentiate their product (with respect to size, weight, ranking or offering gift etc.) with a view to attract the buyers and exercising partial control over price. It is relevant to monopolistically competitive market.

Features of Monopolistic Competition : 

1. A Large Number of Sellers and Buyers : In monopolistic competition, the number of sellers is sufficiently large but not as large as under perfect competition. The sellers are not mutually dependent upon one another. Each of them acts independently and produces an insignificant portion of the total output.

2. Free Entry and Exit of Firms : Firms under monopolistic competition are free to enter or leave the industry at any time. New firms may start producing close substitutes of the product and supply the same in the market. Likewise, in the event of losses, the old firms may quit the industry. It is because of this characteristic, that firms are able to manage only normal profits. 

3. Selling Costs : Another important feature of monopolistic competition is that every firm tries to promote its sales through advertisement. Expenditures incurred on advertisement, etc., are known as selling cost. Selling costs are made to persuade buyers to buy a particular brand in preference to other brands of the product. Thus, selling costs tend to shift the firm’s demand curve to the right.