Today is Tuesday, November 16, 2010.
The price of gold has taken a
beating the past few days, dropping from $1,400 to $1,330 per troy ounce.
At one end of the industrial organization spectrum, or the market structure
spectrum, is competition.
At the other end of the spectrum is monopoly.
models have been discussed in detail.
Between the two extremes are two
other types of industries, or markets:
In the same way that
is a Greek construct meaning "a single firm,
or producer", oligopoly means "a few producers".
We will begin our
discussion with an analysis of monopolistic competition, a term originating
during the Great Depression of the 1930's from the writings of two famous
economists of the time, Ed Chamberlin and Joan Robinson.
Attached to this
lecture is Table 23-1, Characteristics of Monopolistic Competition.
important that you compare Table 23-1 with its two predecessors, Table 19-1,
Characteristics of Firms in Competition, and Table 21-1, Characteristics of
Note that the first two structure characteristics of
competition and monopolistic competition are identical:
there are many
producers in the industry supplying the market, and there is freedom of entry
The significant difference between the two types of firms, or
industries, is the third structure characteristic:
competitive firms produce a
perfectly homogeneous product.
Firms in monopolistic competition produce
This means that the products of firms in monopolistic
competition are not perfectly homogeneous, but are
are familiar with a large number of such products.
You see them at the
market every day.
The most common goods include baked bread, soft drinks,
beer, soap and detergents, and countless prepared foods such as soup,
cheese, tomato sauce, and potato chips.
If you have ever seen an
advertisement for a product, and you see a lot of different brands on the store
shelf, you have discovered the wonderful world of monopolistic competition.
This is the only time that I will utilize, and insist upon, the word
Corn production in the U.S. is a
There are thousands of corn producers, some as small as 40 acre farms, and some as
large as Con-Agra's million acre farms.
But the product is
when the corn from the
40-acre Nebraska farm is harvested, it can be stored (mixed) with the output of the giant corporate farm in a
silo (grain elevator) like you see all across the Midwest.
When the small farmer retrieves his corn to sell or
use as cattle feed, he just gets the same number of bushels out that he stored in the grain elevator.
probably actually receives someone else's corn, but no one cares because it is a
This is the main reason why Farmer Brown does not advertise his corn.
Under competition, he can
sell all he wants at the going market price without having to advertise.