MONOPOLISTIC COMPETITION CHAPTER 7

MARKET STRUCTURES REVIEW: 4 MARKET STRUCTURES WE HAVE COVERED: PERFECT COMPETITION MOST MARKETS FALL INTO WHAT WE CALL: MONOPOLISTIC COMPETITION OLIGOPOLY

MONOPOLISTIC COMPETITION MANY BUYERS AND SELLERS COMPETE IN AN OPEN MARKET PRODUCTS ARE SIMILAR BUT NOT IDENTICAL

MONOPOLISTIC COMPETITION 4 CONDITIONS 1) MANY FIRMS 2) FEW BARRIERS TO ENTRY PATENTS DO NOT PROTECT ANYONE (PRODUCTS ARE DISTINCT ENOUGH TO FALL OUTSIDE THE ZONE OF PATENT PROTECTION)

MONOPOLISTIC COMPETITION 4 CONDITIONS 3) SLIGHT CONTROL OVER PRICE FREEDOM TO RAISE OR LOWER PRICES BECAUSE EACH FIRM’S GOODS ARE A LITTLE DIFFERENT LIMITED CONTROL OVER PRICE – PRICE IS RAISED TOO HIGH, CONSUMERS WILL BUY A SUBSTITUTE

MONOPOLISTIC COMPETITION 4 CONDITIONS 4) DIFFERENTIATED PRODUCTS THIS SEPERATES MON. COMP. FROM PERFECT COMPETITION PRODUCTS ARE NOT IDENTICAL

EXAMPLES OF MONOPOLISTIC MARKETS JEANS/CLOTHING BANKS JEWELRY COMPUTERS SPORTING GOODS

OLIGOPOLY EXAMPLE

OLIGOPOLY IMPERFECT FORM OF MONOPOLY FOUR LARGEST FIRMS PRODUCE AT LEAST 70 TO 80 PERCENT OF THE OUTPUT CEREAL, SODA, CARS