Ch 13 – Monopolistic competition

Ch 13 – Monopolistic competition - Ch. 13:...

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Ch. 13: Ch. 13: Monopolistic competition and Monopolistic competition and oligopoly oligopoly Olivier Giovannoni ECO304K: Introduction to Microeconomics
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Outline Outline 1. What is monopolistic competition? 1. (Price; Quantity) decisions 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)
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1. What is monop. competition? 1. What is monop. competition? Monopolistic competition is a situation “in between” perfect competition and pure monopoly. Monopolistic competition is a market structure in which: 1. A large number of firms compete 2. Firms are free to enter and exit This implies that there is no profit over the long run in monop. competition. 1. Each firm produces a differentiated product Firms produce “close” substitutes but not perfect substitutes. Differentiated products imply that the firm’s demand curve is downward sloping . 1. Firms compete on product quality, price and marketing. 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. The position on the firm’s demand curve is dictated by a quality-price trade-off. Examples of monopolistic competition are: Technological products because they are almost never exactly identical to each other (phones, computers, MP3 players…) but also some prepared food product and clothes…
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2. (p;Q) in monop. comp. As before, profits in monopolistic competition are related to the particular characteristics of this market structure. The general rule MR=MC is still valid; it gives us the profit-maximizing level of output. if MR>MC, you are making a profit out of producing that item and want to Q if MR<MC, you are making a loss out of producing that item and want to Q Because of product differentiation, The firm’s demand in is downward sloping (no close substitute). The firm’s MR curve is downward sloping too , but different than the demand curve. This is for the same reason as in monopoly: having differentiated products means that individual firms enjoy some degree of monopoly power for the good they are producing. The costs are the same as before:
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This note was uploaded on 11/04/2009 for the course PHYSICS 302K taught by Professor Irenepolycarpou during the Fall '09 term at University of Texas at Austin.

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Ch 13 &acirc;€“ Monopolistic competition - Ch. 13:...

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