Chapter 12 - comptetition vs monopoly

Chapter 12 - comptetition vs monopoly - Chapter 12: Between...

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Chapter 12: Between competition and monopoly Monopolistic competition Three puzzling observations o Why are there so many retailers? because all products differ at least slightly under monopolistic competition, a reduction in the number of firms means that the number of different products falls as well. o Why do oligopolists advertise more than “more competitive” firms? oligopolies advertise because they cannot sell all of their product that they would like they either have to reduce prices or advertise more firms in an oligopoly with differentiated products must compete via advertising , whereas perfectly competitive firms gain little or nothing by doing so. o Why do oligopolists seem to change their prices so infrequently? A kinked demand curve is a demand curve that changes its slope abruptly at some level of output A price is sticky if it does not change often even when there is a moderate change in cost. Monopolistic competition refers to a market in which products are heterogeneous but which is other wise the same as a market that is perfectly competitive. Characteristics of monopolistic competition o A market is said to operate under conditions of monopolistic competition if it satisfies four requirements, three of which are the same as those for perfect competition Numerous participants – that is many buyers and many sellers, all of whom are small Freedom of exit and entry Perfect information Heterogeneous products – as fare as the buyer is concerned, each seller’s product differs at least somewhat from every other seller’s product Price and output determination under monopolistic competition
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Chapter 12 - comptetition vs monopoly - Chapter 12: Between...

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