1. Imperfectly Competitive Markets Monopolistic Competition Oligopoly

2. Most markets operate in an intermediate situation between perfect competition and monopoly Types of Imperfectly Competitive Markets – Monopolistic Competition Many firms selling products that are similar but not identical. – Oligopoly Only a few sellers, each offering a similar or identical product to the others.

3. Comparison with perfect competitive market Essential differences: - the firm is facing a demand curve downward sloping - the firm realizes that the amount that will sell depends on the price that decides to set

4. Monopolistic Competition: specific characteristics There are many firms that offer products as close substitutes for each other Each firm has a limited degree of decision- making power on the price The competition also takes place on the level of quality and differentiation Free entry and exit

5. The demand for the single firm: Perfect competition versus monopolistic competition Price Quantity Demand Monopolistic Competition Perfect competition

6. Equilibrium Quantity Price Profit- maximizing quantity EQUILIBRIUM Price Demand ATC The Firm Makes Profit Average total cost MC MR profit ATC

7. Monopolistic competition does not have all the desirable properties of perfect competition (social inefficiencies) Prices are higher the number of firms in the market may not be the “ideal” one. There may be too much or too little entry. Role of advertising

8. critics When firms sell differentiated products and charge prices above marginal cost, each firm has an incentive to advertise in order to attract more buyers to its particular product. Firms that sell highly differentiated consumer goods typically spend between 10 and 20 percent of revenue on advertising. Critics of advertising argue that firms advertise in order to manipulate people’s tastes. They also argue that it impedes competition by implying that products are more different than they truly are.

9. What determines the structure of the market? Demand conditions versus cost of production Variety in the level of entry barriers