CHAP 13 - CHAP 13 Monopolistic competition Olivier...

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CHAP 13 – Monopolistic Monopolistic competition competition Olivier Giovannoni 304K: Introduction to Microeconomics Nov. 5, 2005
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Outline 1. What is monopolistic competition? 1. (p;Q) in monopolistic competition 1. Product development and marketing 1. What is oligopoly? 1. Two traditional oligopoly models 1. Monopoly games (short intro to game theory) CHAP 13- Monopolistic competition 2
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1. What is monop. comp.? Monopolistic competition is a situation “in between” pure monopoly and perfect competition. Monopolistic competition is a market structure in which: A large number of firms compete Firms are free to enter and exit This implies that there is no profit over the long run in monopolistic competition. Each firm produces a differentiated product Firms produce “close” substitutes but not perfect substitutes. Differentiated products implies that the firm’s demand curve is downward sloping. Firms compete on product quality, price and marketing. The position on the firm’s demand curve is dictated by a quality-price trade-off. The existence of product differentiation and a large number of firms in the industry means that firms have to rely on marketing in order to justify their quality-price choice. Examples of monopolistic competition are
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CHAP 13 - CHAP 13 Monopolistic competition Olivier...

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