Monopolistic_Competition

Monopolistic_Competition - Monopolistic Competition 6/6/11

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 6/6/11 Monopolistic  Competition
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 6/6/11 The Meaning of Monopolistic Competition Monopolistic competition  is a market structure in  which: § there are  many  competing producers  in an  industry § each producer sells a  differentiated product § there is  free entry into and exit   from the  industry in the long run
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 6/6/11 1. Product differentiation takes three main forms: by style or  type, by location, or by quality.  2. Short-run profits will attract entry of new firms in the long  run. This reduces the quantity each existing producer sells  at any given price and shifts its demand curve to the left.  3. Short-run losses will induce exit by some firms in the long  run. This shifts the demand curve of each remaining firm  to the right.
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 6/6/11 Product Differentiation Product differentiation plays an even more crucial role  in monopolistically competitive industries.  Why? § Tacit collusion is virtually impossible when there are  many producers.  § Thus, product differentiation is the only way  monopolistically competitive firms can acquire some  market power. §  Examples of monopolistically competitive  industries?
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 6/6/11 § How do firms in the same industry—such as fast- food vendors, gas stations, or chocolate companies— differentiate their products? § Is the difference mainly in the minds of consumers or  in the products themselves?
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 6/6/11 There are three important forms of product  differentiation:  § Differentiation by style or type  – sedans vs. SUVs § Differentiation by location  – dry cleaner near  home vs. cheaper dry cleaner far away § Differentiation by quality  – ordinary ($) vs.  gourmet chocolate ($$$) Product Differentiation
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 6/6/11 Product Differentiation Whatever form it takes, however, there are two 
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This note was uploaded on 06/06/2011 for the course ECON 104 taught by Professor Laho during the Spring '11 term at CUNY City Tech.

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Monopolistic_Competition - Monopolistic Competition 6/6/11

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