[ 4.3 ] Monopolistic Competition and Oligopoly

Characteristics of Monopolistic Competition Four Conditions of Monopolistic Competition

Characteristics of Monopolistic Competition The market for jeans is monopolistically competitive because jeans can vary by size, color, style, and designer.

Characteristics of Monopolistic Competition Under conditions of monopolistic competition, prices of similar products are not identical but are usually close to one another.

Non-price Competition The ability to differentiate products means that firms do not have to compete on price alone. The alternative is non-price competition, or competition through ways other than lower prices. Non-price competition takes several different forms.

Non-price Competition Location is one characteristic of non-price competition. Stores located on Rodeo Drive, the exclusive shopping area in Beverly Hills, California, shown here, sell many expensive goods.

Prices, Output, and Profits Economists study prices, output, and profits when comparing market structures. They find that under monopolistic competition, the market looks very much as it would under pure competition.

Prices, Output, and Profits Production Costs and Variety

Prices, Output, and Profits Analyze Charts How are pure competition and monopolistic competition similar? How are they different?

Prices, Output, and Profits Celebrity endorsements are one way that rival companies differentiate their products. Here, actress Elizabeth Taylor poses with a perfume that she helped create and sell.

Characteristics of Oligopoly Oligopoly describes a market dominated by a few large, profitable firms. Oligopoly looks like an imperfect form of monopoly. Some economists call an industry an oligopoly if the four largest firms produce at least 70 to 80 percent of the output.

Characteristics of Oligopoly Barriers to Entry Cooperation and Collusion Cartels

Characteristics of Oligopoly Analyze Graphs Are the music companies in this graph an example of an oligopoly? Why or why not?

Characteristics of Oligopoly The video game console industry is an oligopoly because a few large companies dominate the industry.

Quiz: Characteristics of Monopolistic Competition A monopolistically competitive firm has some control over price because A. its output is large enough to affect the demand. B. it can work with a rival firm to set prices in the market. C. there are many competing firms. D. it can differentiate its goods from other products.

Quiz: Non-price Competition A hotel that offers a complimentary fruit basket and a concierge who will help you plan your activities is an example of what kind of non-price competition? A. advertising, image, or status B. service level C. location D. physical characteristics

Quiz: Prices, Output, and Profits Why can’t a monopolistically competitive firm raise prices as high as a true monopoly can? A. because, like a monopoly, their output is extremely limited B. because new firms will enter the market with identical products C. because monopolistically competitive firms already earn profits well above their costs D. because competition would ensure that customers buy a rival firm’s cheaper product

Quiz: Characteristics of Oligopoly Why is a price war harmful to producers? A. If prices go too high, then the producers will have too many competitors. B. If prices go too low, then the producers won’t be able to make a profit. C. If there is a price war, then there can no longer be a price leader. D. If prices go too high, then the producers will have too few competitors.

[ 4.4 ] Government Regulation and Competition

Government and Competition Market Power Antitrust Laws Regulating Business Practices Splitting Up Monopolies Assessing Mergers Merger Guidelines

Government and Competition Monopolies such as cable TV companies have a lot of market power. This photo shows an ad protesting a time when Time Warner (TW) cable company blocked a major network from its customers.

Government and Competition The Sherman Antitrust Act formed the basis for later federal policies aimed at supporting economic competition. Analyze Information How did the Clayton Antitrust Act aid trust-busting?

Government and Competition In 1984, AT&T was broken into seven companies that provided local telephone service. Analyze Maps What effect do you think this breakup had on the prices of phone service?

Deregulation In the late 1970s and 1980s, Congress decided that some government regulation was reducing competition. It passed laws to deregulate several industries. Deregulation means that the government no longer decides what role each company can play in a market and how much it can charge its customers.

Deregulation Judging Deregulation Airline Deregulation: Mixed Results

Deregulation Supporters of regulation and of deregulation both argue that the result is more competition. Analyze Information Choose one entry from each column and explain how it boosts competition.

Deregulation Deregulation of the trucking industry lowered barriers to entry. That led to the founding of many new small businesses, in which independent truckers owned and operated their own trucks.

Deregulation The average cost of flying generally decreased after the Airline Deregulation Act took effect. Analyze Graphs Why did airline deregulation lead to lower prices for consumers?

Quiz: Government and Competition The government would likely block a merger if the merger would A. bring two large companies together. B. lead to unfair market control. C. decrease prices too much. D. generate greater efficiencies.

Quiz: Deregulation Which of the following effects of an industry’s deregulation would show that it had failed to achieve its objective? A. Several large companies have gone bankrupt. B. Several large companies have merged. C. The industry has expanded wildly. D. Market prices have risen significantly.