Imperfect Competition; Monopolistic

Competition & Oligopoly

Swapan Chakraborty
Monopolistic Competition

Characteristics:
1. Few sellers in the market
2. Product differentiation is possible
3. Free entry & exit
4. Competition on the generic quality of the products
but market power prevails specific to the brand.
Key areas:
• Product differentiation
• Advertisement is the key area of firm’s policy
Monopolistic Competition: Perceived demand
and Market share demand

Price
D

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Quantity
Chamberlin’s (1933) Analysis of Monopolistic
Competition
• Profit Maximizing condition of the firm;

Chamberlin, E. (1933): The Theory of Monopolistic Competition. Harvard University

Press, USA
Chamberlin’s (1933) Analysis of Monopolistic
Competition: Short-run analysis

Price d

SMC
SAC
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AR

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MR

0
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Quantity
Chamberlin’s (1933) Analysis of Monopolistic
Competition: Long-run analysis

Price
LMC
d

LAC

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AR

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MR

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Quantity
Oligopoly Market

Characteristics:
1. There are few sellers in the market. Sometime, the market
can comprise of only two sellers; duopoly model.
2. Each sellers are selling goods which are homogenous in
nature.
3. Both price (Bertrand) as well as non-price (Cournot)
competitions are possible.
4. Deciding on strategies each firm consider its rival’s strategy.
Note: Game theory as a tool is used extensively in oligopoly
model.
Cournot’s (1838) Duopoly Model

1. There are two-sellers in the market.

2. Each sellers have identical cost condition.
3. Sellers decide on ‘quantity’ not the price.
4. There is zero ‘conjectural variation’. Each sellers
assumes the quantity of the other seller as given
such that
Cournot’s Duopoly Model