-
monopolistic competition
- two monopolies with different but similar products competing against one another
- these firms can charge P>MC, but to the extent to which P is greater than MC is smaller than in the case where the monopolist has no competitors to worry about
-
2 key characteristics of a monopolistically competitive market
- products are highly (but not perfectly) substitutable for one another (high but not infinite cross price elasticities of demand)
- free entry and exit by firms
-
is monopolistic competition socially undesireable?
- does lead to deadweight loss, but this loss is smaller than it usually is under monopolistic situations
- consumers pay more than marginal cost, but benefit from product diversity
-
oligopolistic market
- small number of firms selling goods that may or may not be differentiatedÂ
- pricing behaviour falls inbetween perfect competition and a monopoly
|
|
