1. Oligopoly and Monopolistic Competition

2. Characteristics of a monopolistically competitive market
Many buyers and sellers
Differentiated products
Easy entry and exit

3. Relationship to other market models
Monopolistic competition is similar to perfect competition in that:
There are many buyers and sellers
There are no barriers to entry or exit
Monopolistic competition is similar to monopoly in that:
Each firm is the sole producer of a particular product (although there are close substitutes)
The firm faces a downward sloping demand curve for its product

4. Demand curve facing a monopolistically competitive firm

5. The firm’s demand curve and entry and exit
As firms enter a monopolisticall y competitive market, the demand facing a typical firm declines and becomes more elastic.

6. Short-run equilibrium in a monopolistically competitive industry
Economic profits lead to entry and a reduction in the demand facing a typical firm.

7. Long-run equilibrium in a monopolistically competitive industry
Entry continues until economic profit equals zero for a typical firm.
This equilibrium is often referred to as a “tangency equilibrium.”

8. Product differentiation and advertising
Monopolistically competitive firms may receive short-run economic profit from successful product differentiation and advertising.
These profits are, however, expected to disappear in the long run as other firms copy successful innovations.

9. Location decisions
Monopolistically competitive firms often locate near each other to appeal to the “median” customer in a geographical region. (e.g., fast food restaurants and car dealerships)
Film about monopolistic competition

10. Oligopoly a small number of firms produce most output
a standardized or differentiated product
recognized mutual interdependence
difficult entry.

11. Strategic behavior
Strategic behavior occurs when the best outcome for one firm depends upon the actions and reactions of other firms.

12. Kinked demand curve model
Other firms are assumed to match price decreases, but not price increases. AC D B A MC O Q MR C

13. Game theory examples
Examines the payoffs associated with alternative choices of each participant in the “game.”
Prisoners’ dilemma (Film)
Duopoly pricing game

14. Shared monopoly
Joint profits are higher when firms behave as a shared monopoly
Cartel arrangement is illegal in the U.S. and UE
A cartel arrangement can maximize industry profits
Each firm can increase its profits by violating the agreement
Cartel agreements have generally been unstable.

15. Film about oligopoly

16. Bibliography: http://www.oswego.edu/~kane/eco101.htm
Czarny B. „Podstawy ekonomii”, PWE, 2002