Annu S Pant
Visiting Faculty of Economics
Kathmandu University
2010
In This Lecture…
 Monopolistic
Competition – Pricing and
Production Decision in
Short Run and in Long
Run
 Oligopolistic...
Monopolistic Competition
The theory of monopolistic competition is
built on three assumptions:
 There are many sellers an...
Monopolistic Competition
 The monopolistic competitor is a price
searcher.
 For the monopolistic competitor, P > MR,
and...
Monopolistic Competitive Firm’s
Output and Price (short-run)
 The monopolistic
competitor produces
that quantity of outpu...
The Monopolistic Competitive Firm’s
Long-run Equilibrium Output and Price
 Unlike the perfectly competitive firm, the
mon...
The Monopolistic Competitive Firm’s
Long-run Equilibrium Output and Price
Because of easy entry
into the industry,
there a...
Oligopoly
A theory of market structure based on three
assumptions:
 There are few sellers and many buyers.
 Firms produc...
Oligopolist
 The oligopolist is a price searcher.
 It produces the quantity of output at
which MR = MC.
Types of Oligopoly
 Perfect or Imperfect Oligopoly
 Non-collusive or Collusive Oligopoly
 Duopoly
Types of Oligopoly
 Perfect or Imperfect Oligopoly
If in an Oligopoly market, the firms
produce homogeneous products it i...
Types of Oligopoly
 Non-collusive or Collusive Oligopoly
If in an oligopoly market firms compete
with each other it is ca...
Types of Oligopoly
 Duopoly
When there are only two firms producing
a product, it is called duopoly. It is a
special case...
Oligopoly vs Monopolistic
Competition
 Number of buyers and sellers
In an oligopoly market, there are few
sellers but lar...
Oligopoly vs Monopolistic
Competition
 Nature of Product
In oligopoly market, the product may
be homogenous or differenti...
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chapter 13. monopolistic competition

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chapter 13. monopolistic competition

  1. 1. Annu S Pant Visiting Faculty of Economics Kathmandu University 2010
  2. 2. In This Lecture…  Monopolistic Competition – Pricing and Production Decision in Short Run and in Long Run  Oligopolistic Competition – Features and distinction from Monopolistic Competition
  3. 3. Monopolistic Competition The theory of monopolistic competition is built on three assumptions:  There are many sellers and buyers.  Each firm in the industry produces and sells a slightly differentiated product.  There is easy entry and exit.
  4. 4. Monopolistic Competition  The monopolistic competitor is a price searcher.  For the monopolistic competitor, P > MR, and the marginal revenue curve lies below the demand curve.  The monopolistic competitor produces the quantity of output at which MR =MC.  It charges the highest price per unit for this output.
  5. 5. Monopolistic Competitive Firm’s Output and Price (short-run)  The monopolistic competitor produces that quantity of output for which MR = MC at q1.  It charges the highest price consistent with this quantity, which is P1.
  6. 6. The Monopolistic Competitive Firm’s Long-run Equilibrium Output and Price  Unlike the perfectly competitive firm, the monopolistic competitor does not exhibit resource allocative efficiency.  Unlike the monopoly firm, the monopolistic competitive firm cannot earn profits in the long run (because of easy entry into the industry) unless it can successfully differentiate its product (e.g., by brand name) in the minds of buyers.
  7. 7. The Monopolistic Competitive Firm’s Long-run Equilibrium Output and Price Because of easy entry into the industry, there are likely to be zero economic profits in the long run for a monopolistic competitor. In other words, P = ATC.
  8. 8. Oligopoly A theory of market structure based on three assumptions:  There are few sellers and many buyers.  Firms produce and sell either homogeneous or differentiated products.  There are significant barriers to entry.
  9. 9. Oligopolist  The oligopolist is a price searcher.  It produces the quantity of output at which MR = MC.
  10. 10. Types of Oligopoly  Perfect or Imperfect Oligopoly  Non-collusive or Collusive Oligopoly  Duopoly
  11. 11. Types of Oligopoly  Perfect or Imperfect Oligopoly If in an Oligopoly market, the firms produce homogeneous products it is called perfect oligopoly. If the firms produce differentiated products, it is called imperfect oligopoly.
  12. 12. Types of Oligopoly  Non-collusive or Collusive Oligopoly If in an oligopoly market firms compete with each other it is called non-collusive oligopoly market or non-cooperative oligopoly market. If the firms cooperate with each other in determining price or output or both, it is called collusive oligopoly or cooperative oligopoly.
  13. 13. Types of Oligopoly  Duopoly When there are only two firms producing a product, it is called duopoly. It is a special case of oligopoly.
  14. 14. Oligopoly vs Monopolistic Competition  Number of buyers and sellers In an oligopoly market, there are few sellers but large number of buyers. In monopolistic competition, there are large number of buyers and sellers.
  15. 15. Oligopoly vs Monopolistic Competition  Nature of Product In oligopoly market, the product may be homogenous or differentiated. In monopolistic market, the products are differentiated.  Entry/ exit of firms In oligopoly market, the entry and exit of firms are restricted while in monopolistic market it is not.

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