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Monopolistic Competition & Oligopoly

Monopolistic or Imperfect Competition Characteristics

large number of small sellers

Single seller do not have a significant effect on other sellers

Many buyers but they attached to certain sellers

Resources can easily be transferred in to and out of the industry

Free entry and exit

Goal of a firm is to maximize profits

Slightly differentiated, but not a perfect substitute for that of other firms.

Individual firm has some control over price

Profit maximization in short run

Assumes that advertising and product attributes have already been determined.

Determining the profit-maximizing output and price are the remaining decisions for managers.

Assumes that all firms have similar demand and cost curves.

Monopolistic competitions in the short run are similar to those of monopoly.

Managers able to differentiate their product can maintain a relatively inelastic demand curve.

Example
Example

Full note set with Examples and Questions: http://www.executioncycle.lkblog.com/2012/06/my- business-economics-and-financial.html

Profit maximization in Long run - Normal profit

Reasons

more and more firms come in to the industry and start to produce substitute

Larger number of firms demand for production factors prices of such factors begins to increase

production factors prices of such factors begins to increase Oligopoly  Small number of sellers unspecified

Oligopoly

Small number of sellers unspecified number of buyers

Each firm must consider the effect of its actions on other firms

Product may be either homogeneous or differentiated

Entry difficult

If the product is homogeneous, the market is said to be a pure oligopoly. ex- cement and steel market

If the product is not homogeneous, the market is said to be a differentiated oligopoly. Ex automobile and television industry

Full note set with Examples and Questions: http://www.executioncycle.lkblog.com/2012/06/my- business-economics-and-financial.html

Models

Kinked Demand Curve

Assumption firms only follow price cuts but not the price hikes

Cartel

Only produce a pre determined number of products & sell them to a predetermine price Price Leadership

Summary

 

Monopolistic

Characteristics

Pure Competition

Competition

Oligopoly

Monopoly

Number of

No direct

competitors

Many

Few to many

Few

competitors

Ease of entry into industry by new firms

Easy

Somewhat

Difficult

Regulated by

Difficult

government

Similarity of goods or services offered by competing firms

 

No directly

Similar

Different

Can be either similar or different

competing goods

 

or service

Control over

prices by

None

Some

Some

Considerable

individual firms

Demand curves

Kinked; inelastic below kink; more elastic above

 

facing individual

Totally elastic

Can be either elastic or inelastic

Can be either elastic or inelastic

firms

Examples

Bread

Snack bar

Mobile providers

CTC

Full note set with Examples and Questions: http://www.executioncycle.lkblog.com/2012/06/my- business-economics-and-financial.html