Monopolistic Competition and Oligopoly Students will be able

Monopolistic Competition and Oligopoly Students will be able to identify characteristics of monopolistic competition and oligopoly. Define the following terms in your notes: MONOPOLISTIC COMPETITION DIFFERENTIATION NONPRICE COMPETITION OLIGOPOLY E. Napp

COMPARING MARKETS MAIN DIFFERENCE BETWEEN MARKETS IS NUMBER OF SUPPLIERS: Many: Perfect Competition/Monopolistic Competition Few: Oligopoly One: Monopoly E. Napp

The Four Different Market Structures Perfect Competition Monopolistic Competition Oligopoly Monopoly More competition= More Consumer Control Less competition= More Supplier Control E. Napp

The market for jeans is an example of monopolistic competition. E. Napp

Monopolistic Competition MANY SUPPLIERS/CONSUMERS SUPPLIERS HAVE LIMITED CONTROL OF PRICES ◦ (Close to perfect competition) FREEDOM TO ENTER OR EXIT MARKET (FEW BARRIERS TO ENTRY) MAIN DIFFERENCE WITH PERFECT COMPETITION: : DIFERENTIATED PRODUCTS Helf

One of these brands could easily be substituted for the other brand. E. Napp

Differentiation DIFFERENTIATION OCCURS WHEN A GOOD IS PRODUCED SLIGHTLY DIFFERENT FROM ANOTHER GOOD IN MONOPOLISTIC COMPETITION, DIFFERENTIATION IS CRITICAL. Products are similar but not identical. The not identical part allows for a slightly higher price but just slightly higher. E. Napp

Nonprice competition is using something other than price to attract customers. Convenience is an example. E. Napp

Nonprice Competition NONPRICE COMPETITION: USING SOMETHING OTHER THAN PRICE TO ATTRACT CUSTOMERS. Style, location, and service are examples of non-price competition. Convenience, advertising and brand recognition E. Napp

Some markets are oligopolies. An oligopoly is a market dominated by a few sellers. E. Napp

Oligopoly OLIGOPOLY: MARKETS IN WHICH A FEW LARGE FIRMS DOMINATE. Usually, the four largest firms produce at least 40 percent of the market’s output. The government closely monitors oligopolies. Examples? E. Napp

Oligopoly OLIGOPOLY: MARKETS IN WHICH A FEW LARGE FIRMS DOMINATE. Usually, the four largest firms produce at least 40 percent of the market’s output. The government closely monitors oligopolies. Airlines, Banking, Automobiles E. Napp

Oligopoly: Characteristics FEW SELLERS, MANY BUYERS CAN BE EITHER STANDARDIZED OR DIFFERENTIATED PRODUCTS SUPPLIERS HAVE MORE CONTROL OF PRICE HIGH BARRIERS TO ENTRY (HIGH START UP COST, REGULATIONS) Helf

Barriers to entry lead to oligopolies.

Oligopoly: Market Behaviors CARTEL: FORMAL ORGANIZATION OF PRODUCERS THAT CONTROL SUPPLY AND PRICE ◦ OPEC, Diamond producers COLLUSION: ILLEGAL AGREEMENT TO SET PRICES, DIVIDE MARKETS, SET PRODUCTION ◦ Airlines setting prices for shared routes Helf

The government closely monitors oligopolies because a market dominated by a few sellers could act like a monopoly! E. Napp

Perfect Competition Monopolistic Competition Oligopoly Monopoly The Four Different Market Structures E. Napp

It is important to remember that competition benefits consumers. E. Napp

Questions for Reflection: List two conditions of monopolistic competition. How do suppliers use differentiation to increase their sales? What is the difference between differentiation and nonprice competition? List two conditions of an oligopoly. Why does the government closely monitor oligopolies? E. Napp