Monopolistic
Competition and
Oligopoly
Objectives
Describe characteristics and give
examples of monopolistic competition.
 Explain how firms compete without
lowering prices.
 Describe characteristics and give
examples of oligopoly.

What is monopolistic competition?


Many companies
compete to sell
products that are
similar but not
identical.
Example: The jean
industry, soft drink
industry, home
appliances, etc.
Four Conditions of Monopolistic
Competition


Many firms
Few artificial barriers to entry
 No

patents or copyrights
Little control over price
 Too

many substitutes with lots of competition
Differentiated products
 Profiting
from the fact that one product is different
from other similar products
Non-Price Competition
Physical characteristics
 Location
 Service level
 Advertising, image, or status

Four Conditions of Oligopoly
Few firms (Suppliers produce 70% to 80%
of all output)
 Many artificial barriers to entry

 Government
patents and copyrights
Some control over price
 Some variety of goods

Cooperation and Collusion

Oligopoly’s challenge to government:
 Price leadership
 Price wars
 Harmful to producers but good for consumers
 Collusion
 An agreement to divide the market, set prices, or limit
production.
 Price fixing
 Illegal in the U.S.
 Cartel
 A formal agreement or organization of producers to
coordinate prices and production
 Illegal in the U.S.