1. Oligopoly and Monopolistic Competition

2. VARIETIES OF IMPERFECT COMPETITION Oligopoly – few sellers that produce an identical (or almost identical) product, or differentiated products (their valued characteristics or qualities vary) Monopolistic competition – large number of sellers produce differentiated products

3. StructureNumber of producers and degree of product differentiation Part of economy where prevalent Firm’s degree of control over price Methods of marketing Perfect competitionMany producers, identical product A few raw agricultural products (wheat, corn,...) NoneMarket exchange or auction Imperfect competition Many differentiated sellers (monopolistic competition) Oligopoly Many producers, many real or perceived differences in product Few producers, little or no difference in product Few producers, some differentiation of products Retail trade (food, gasoline,..) Steel, chemicals Autos, computers Some Advertising and quality rivalry, administered prices Complete monopolySingle producer, product without close substitutes Local telephone, electricity, and gas utilities („natural monopolies“) Considerable, but usually regulated Advertising and service promotion Overview of different types of competition

4. OLIGOPOLY represents the most common market structure in economy determination of the equilibrium output and the price in oligopoly is more complicated, because in case of only few firms each of them has to consider carefully not only its own strategy, but also to watch the competitors behaviour they could go so far, they make an effort to predict, how the other firms will respond to the change of their strategy  therefore, we can mention a very important feature of oligopoly, which is mutual dependence of individual firms, leading to the, so called, strategic decision making

5. DOMINANT-FIRM OLIGOPOLY - where the largest firm controls 60 to 80 % of the market, that firm has a number of possible strategies - the most profitable is often to cede part of the market to the competitive fringe and then to behave as a monopolist for the remaining 60 to 80 % of the market that the firm controls COLLUSIVE OLIGOPOLY - firms may decide to cooperate and seek the collusive oligopoly equilibrium, a situation in which firms collude to set the monopoly price and maximize their joint or collective profits TYPES OF OLIGOPOLY

6. Collusive oligopoly

7. Dominant-firm oligopoly

8. MONOPOLISTIC COMPETITION resembles perfect competition in three ways – there are many buyers and sellers, entry and exit is easy, and each firm takes other firms´ prices as given the distinction is that products are under monopolistic competition differentiated:  the major source of differentiation arises from location  differences in quality,  in brands or trademarks (soft drinks),  in styling (clothing). the product differentiation leads to a downward slope in each seller’s demand curve

9. Long-run equilibrium firm

10. Tasks: Verify the statement and explain: a) The deadweight loss exists only in the situation of monopoly. b) In case of oligopoly there are no barriers to competition. c) The most obvious bonding of firms decision can be seen in case of perfect competition. d) Monopolistic competitive industry produces smaller amount of production for lower prices than oligopoly. e) Behavior of collusive oligopoly resembles the condition of monopolistic competition.