Monopolistic Competition Chapter And 7.3 Oligopoly E. Napp

First A Review… What are the characteristics of PERFECT Competition?  1) Numerous buyers/sellers  2) Standardized Product  3) Freedom to enter/exit markets  4) Independent buyers/sellers  5) Well-informed buyers/sellers E. Napp

What are the characteristics of a monopoly?  1) Only one seller  2) A restricted, regulated market  3) Control of Prices E. Napp

I. Most Markets – Real World  Most markets in the real world fall between perfect competition and monopolies – called “Monopolistic Competition.”  These markets are competitive because they have several buyers and sellers. AND  They are also monopolistic because each seller has influence over a small segment of the market where the products are not EXACTLY the same as anything else. E. Napp

The market for jeans is an example of monopolistic competition.

E. Napp One of these brands could easily be substituted for the other brand.

Differentiation  Differentiation occurs when a good is produced slightly differently from another good.  In monopolistic competition, differentiation is critical.  Products are similar but not identical. The not identical part allows for a slightly higher price but just slightly higher. E. Napp

Nonprice Competition  Nonprice competition is using something other than price to attract customers.  Style, location, and service are examples of nonprice competition.  Nonprice competition can help businesses attract customers. E. Napp

Nonprice competition is using something other than price to attract customers. Convenience is an example.

E. Napp Some markets are oligopolies. An oligopoly is a market dominated by a few sellers.

II. Oligopoly  An oligopoly is a market in which a few large firms dominate a market.  Characteristics of an Oligopoly: 1) Few Sellers but many buyers E. Napp

2) Standardized or Differentiated Products E. Napp

3) More control of prices E. Napp

4) Little Freedom to Enter/Exit Market  High Start Up costs E. Napp

Competition & Collusion & Price Fixing  Oligopolies present a big challenge to the government!! WHY???  Oligopolistic firms tend to work together to form a monopoly!  They can work together (Illegally)to set prices and stop competitors from entering the market!  This is called Collusion E. Napp

Price Fixing  Agreement between competitors to sell a product at the same price or a VERY similar price. E. Napp

The government closely monitors oligopolies because a market dominated by a few sellers could act like a monopoly!

E. Napp Perfect Competition Monopolistic Competition Oligopoly Monopoly The Four Different Market Structures (different levels of competition)

E. Napp And who does competition benefit? CONSUMERS!

Questions for Reflection: REVIEW QUESTIONS!  1) List two conditions of monopolistic competition.  2) How do suppliers use differentiation to increase their sales?  3) Give a real-world example of a supplier using non-price competition  4) List two conditions of an oligopoly.  5) Why does the government closely monitor oligopolies? E. Napp