AREC 384 monopolistic competition

  1. 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. 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
  3. 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
  4. oligopolistic market
    • small number of firms selling goods that may or may not be differentiated 
    • pricing behaviour falls inbetween perfect competition and a monopoly
Card Set
AREC 384 monopolistic competition
lecture 8