Monopolistic Competition

1
Monopolistic Competition

• Characteristics of Monopolistic Competition
• Comparison of Perfect and Monopolistic Competition

2
Monopolistic Competition

• Most U.S. industry structures fall between
  monopolistic competition and oligopoly.

Pure Competition
Monopolistic Competition
Oligopoly
Monopoly
3
Market Characteristics
Pure Competition
Market Characteristics
Monopolistic Competition
Oligopoly
Monopoly
suppliers Type of goods/service Entry/Exit Mk
t Power Profit
Many Standardized Easy None Normal
Many Differentiated Easy Little Normal
Few Dominate S or D Difficult Large Above
Normal
One Differentiated Impossible Absolute Above
Normal
4
Characteristics of Monopolistic Competition

• Many Sellers (highly competitive market)
• collusion difficult.
• firms act independently.

5
Characteristics of Monopolistic Competition

• Differentiated Products
• Product differentiation gives it its monopolistic
  aspect.

6
Characteristics of Monopolistic Competition

• No significant barriers to entry.

7
Characteristics of Monopolistic Competition

• There are no long-run profits.
• Prices where MC MR.

8
Characteristics of Monopolistic Competition
MC
A
TC
P1
Price
D
MR
0
Q1
Quantity
9
Characteristics of Monopolistic Competition

• Monopolistic competitors have a strong incentive
  to advertise.
• Provides consumer information (good)
• Adds to cost and price (bad)

10
Monopolistic Competition

• Characteristics of Monopolistic Competition
• Comparison of Perfect and Monopolistic Competition

11
Comparison of Perfect and Monopolistic Competition

• Both the monopolistic competitor and the perfect
  competitor make zero economic profit in the long
  run.

12
A Comparison of Perfect and Monopolistic
Competition
MC
MC
ATC
ATC
Pmc
P
Pc
DMR
Price
Price
D
MR
0
0
Qc
Q
Qm
Quantity
Quantity
Perfect Competition
Monopolistic competition