The scenario you described typically corresponds to a monopolistic competition market structure. In this type of market:
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No Barriers to Entry: There are low or no barriers for new firms to enter the market, which allows for free competition.
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Large Number of Firms: There are many firms operating in the market, each of which has some degree of market power due to product differentiation.
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Price-Setting Firms: Firms can set their prices because their products are not perfect substitutes. They may differentiate their products based on factors such as branding, quality, features, or customer service, allowing them to have some control over pricing.
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Non-Price Competition: In addition to pricing strategies, companies often compete through marketing, advertising, and improving product quality or customer service to attract customers.
While firms in monopolistic competition have some control over their prices, they are also subject to competition from other firms, which limits their pricing power. In the long run, the presence of free entry and exit leads to firms earning normal profits (zero economic profit) in equilibrium.
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