Monopolistic Competition
and Oligopoly
Monopolistic competition
• Companies competing in open market selling
items or services similar but not identical
• Blue jeans, bagel shops, ice cream, gas
stations, retail stores
• Variations are minor
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4 Conditions Monopolistic
Competition
• 1. Many firms- easy to enter into market
• 2. Few barriers- patents do not protect against
competition
• 3. Slight control on price- can control price but
have to watch consumers using substitute
goods if $$$ too high
• 4. Differentiated goods- have some feature
that sets products apart from one another
Nonprice competition
• 1. Physical characteristics- size, color, shape,
texture, taste
• 2. Location- location, location, location
• Where do you want a Starbucks?
• 3. Service level- customer service and services
available
• 4. Advertising, image, status-Nike,
• Perceptions vs realities designer names
Price, output, profits
• Prices-similar to perfect competition.
• Because of substitution effect, demand can be
elastic
• Profit- firms earn enough to cover costs but
must constantly compete and come up with
innovations over long haul.
• Production- often lower that a perfectly
competitive market- enough producers overall
for consumers however
Oligopoly
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•
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Few firms dominate a market
Acting alone or as a team
Air travel, cereal, household appliances
Barriers to entry- licenses or patents through
government
• High start up costs, expensive machinery