Monopolistic Competition and Oligopoly
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Transcript Monopolistic Competition and Oligopoly
Monopolistic Competition and
Oligopoly
Objectives
Students will describe characteristics and give examples of
monopolistic competition
Students will explain how firms compete without lowering
prices
Students will understand how firms in a monopolistically
competitive market set output
Students will describe characteristics and give examples of
oligopoly
Monopolistic Competition
Monopolistic Competition – market structure
where many companies sell products that are
similar but not identical
Most common market structure in the United
States
Four Conditions of Monopolistic
Competition
Many firms
Number of sellers is smaller than in perfect competition
Consumers have many different but similar varieties of products
from which to choose
Prices not identical, but competitive
No single seller has a large enough share of the market to
control prices completely
Four Conditions of Monopolistic
Competition
Few artificial barriers to entry
Not as easy as entry into a perfectly competitive market
Slight control over price
Since the product is differentiated and distinguished from
others, there is a certain amount of control over prices
Four Conditions of Monopolistic
Competition
Differentiated products
Distinguished from others in some manner – brand name, style,
etc.
Differences can be real or imagined – customers may think a
particular product is better and thus are willing to pay a higher
price
A very important characteristic of monopolistic competition
Perfect competition – no differentiation
Monopolies – have no incentive for differentiation
Non-Price Competition
Way to attract customers through style, service, or
location, but not a lower price
Examples
Physical characteristics
Location
Service level
Advertising, image, or status
Oligopoly
Oligopoly – market structure characterized by a few large
firms of an identical or differentiated product and difficult
market entry
Oligopoly
Characteristics of oligopoly:
Big business structure in which firms aggressively compete
(many manufacturing industries)
Few sellers – competition among the few – sometimes three or
four firms dominate the market
Action by one firm generally causes a reaction by the others
Oligopoly
Characteristics of oligopoly:
Can be identical or differentiated products
Examples – steel produced by one steel company is pretty much the same
as the steel produced by another steel company (steel companies are
generally considered oligopolies), but cars produced by one car company
are often quite different than those of another)
Oligopolists often compete using advertising to display product
differentiation rather than with pricing (advertising budgets quite large in
these industries – soft drinks, athletic shoes, auto’s, etc)
Oligopoly
Characteristics of oligopoly:
Difficult entry
Significant financial requirements
Control over an essential resource
Patent rights
Other legal barriers
Pricing – have some control
Oligopoly
Characteristics of oligopoly:
Cooperation and Collusion
Price War – a pricing campaign designed to capture additional market
share by repeatedly cutting prices
Collusion – rival companies cooperate for their mutual benefit
Price fixing – agreement by competing companies to sell the same
product at the same price
Cartels – an association of producers who agree to set common prices
and quotas to prevent competition. Illegal in the United State, but not in
many other nations.