Class03_31

Class03_31 - 31/03/2008 Class Notes (cover part of Chapter...

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Class Notes (cover part of Chapter 12 in the textbook) Class Outline Monopolistic Competition Oligopoly Monopolistic Competition Def. Monopolistic Competition Monopolistic competition is a market with the following characteristics: A large number of firms. Each firm produces a differentiated product (i.e., a good that is close substitute but not perfect substitute for the products produced by other firms in the market) Firms compete on product quality, price, and marketing. Firms are free to enter and exit the industry. The presence of a large number of firms in the market implies: 1. Each firm has only a small market share 2. No firm pays attention to the actions of the other, and no one firm’s actions directly affect the actions of other firms. 3. Collusion, or conspiring to fix prices, is impossible. Free entry and exit implies that in the long-run profits are zero. Because of product differentiation
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Class03_31 - 31/03/2008 Class Notes (cover part of Chapter...

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