Monopolistic Competition and Oligopoly

Monopolistic Competition and Oligopoly - 1Lecture Notes :...

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1Lecture Notes : Imperfect Competition - Monopolistic Competition and Oligopoly Module Overview In this module, we will study two imperfectly competitive market structures: monopolistic competition and Oligopoly. The concept of the Industry, Product Group and the Firm is important in the study of Monopolistic competition .The analytical treatment of differentiated products in the industry means we cannot simply sum up individual demand and costs to form the market demand and supply schedules as in the case of the perfect competition. A careful study of the underlying assumptions of Monopolistic Competition helps to conclude that product differentiation allows each firm to charge a different price. Product differentiations thus implied that there will be a cluster of equilibrium prices in the industry, reflecting various preferences of consumers. Hence, each firm faces its own unique down sloping market demand curve. With relative ease in industry entry and exit, the individual firm encounters demand shifts when their own market share is affected. In the long run , equilibrium of the monopolistic competitive firms must be achieved through price adjustments by changing plant sizes and responding to firms entering or exiting the industry. In oligopoly, there are a few dominating firms in an industry, and entry is difficult. The interaction of these firms leads to different outcomes, depending on whether there are collusive or independent actions. As before, we will study the firm’s decision based on the profit maximizing output assumption, issues relating to allocative efficiency, adjustment to market equilibrium. Lecture Topics 1. Monopolistic Competition a) Concentration ratio b) Assumptions and the implications of the Chamberlin’s model c) Economic profits and entry of new firms d) Price and Output in monopolistic competition-short and long run equilibrium of the firm e) Excess Capacity f) Comparison with perfect competition 2. Oligopoly a) Characteristics
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This note was uploaded on 12/08/2011 for the course ECON 101 taught by Professor Vanderwaal during the Fall '08 term at Waterloo.

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Monopolistic Competition and Oligopoly - 1Lecture Notes :...

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