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Kimmiey
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# of firms: Many
Products differentiated or homogeneous: Homogeneous
Price a decision variable:No
Easy Entry: Yes
Distinguished by: No price competition
Examples: Wheat farmer
Perfect competition
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# of firms: One
Products differentiated or homogeneous: a single unique producte
Price a decision variable:YEs
Easy Entry: no
Distinguished by: Still constrained by market demand
Examples: Public utility, patent drug
Monopoly
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# of firms: Many
Products differentiated or homogeneous: Differentiated
Price a decision variable: Yes but limited
Easy Entry: Yes
Distinguished by: Price and quality competition
Examples: Restaurants, hand soap
Monopolistic Competition
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# of firms: Few
Products differentiated or homogeneous:Either
Price a decision variable:Yes
Easy Entry: Limited
Distinguished by: Strategic behavior
Examples: Automobiles, aluminum
Oligopoly
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Monopolistic competition
- A common form of industry (market) structure in the united states characterized by
- Large number of firms
- No barriers to entry
- Product differentiationActs as a monopolist for it's particular version of the product
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Monopolistic Competition v. Monopoly
- Firms cannot influence the market price by virtue of size
- Good (but not "perfect") substitutes exist
- Unrestricted entry and exit (zero profit in the long run)
- Firms differentiate their product
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Product differentiation
- A strategy that firms use to achieve market power
- Types
- -Physical: appearance, quality
- -Location: spatial differentiation
- -Service
- -Product image: Promotion, advertising, marketing, packaging
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Oligopoly
- A form of industry (market) structure characterized by a few dominant and interdependent firms
- -Homogenous or differentiated
- -Significant barriers
- -Few firms
- Behavior depends on behavior of other firms in the industry comprising the oligopoly
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Collusion
The act of working with other producers in an effort to limit competition and increase joint profits
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Cartel
A group of firms that gets together and makes joint price and output decisions to maximize joint profits
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Tacit collusion
- Collusion occurs when price and quantity-fixing agreements among producers are explicit
- Tacit collusion occurs when such agreements are implicit
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Price leadership
- A form of oligopoly in which one dominant firm sets prices and all the smaller firms in the industry follow its pricing policy
- Assumes the industry is made up of one dominant firms and number of smaller firms
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Perfectly contestable market
- A market in which entry and exit are costless
- -Even large oligopolistic firms end up behaving like perfectly competitive firms
- Positive profits do not exist
- Threat of competition can force prices down
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