Economics
Monopolistic Market
A monopolistic market is a type of market structure characterized by a large number of firms selling similar but not identical products. Each firm has some degree of market power due to product differentiation, allowing them to set prices to a certain extent. This market structure combines elements of both monopoly and perfect competition.
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10 Key excerpts on "Monopolistic Market"
No longer available |Learn more- (Author)
- 2014(Publication Date)
- College Publishing House(Publisher)
A monopoly is a market structure in which a single supplier produces and sells the product. If there is a single seller in a certain industry and there are no close substitutes for the goods being produced, then the market structure is that of a pure monopoly. Sometimes, there are many sellers in an industry and/or there exist many close substitutes for the goods being produced, but nevertheless firms retain some market power. This is called monopolistic competition, whereas in oligopoly the main theoretical framework revolves around firm's strategic interactions. In general, the main results from this theory compare price-fixing methods across market structures, analyse the impact of a certain structure on welfare, and play with different variations of technological/demand assumptions in order to assess its consequences on the abstract model of society. Most economic textbooks follow the practice of carefully explaining the perfect competition model, only because of its usefulness to understand departures from it (the so called imperfect competition models). The boundaries of what constitutes a market and what doesn't is a relevant distinction to make in economic analysis. In a general equilibrium context, a good is a specific concept entangling geographical and time-related characteristics ( grapes sold in October 2009 in Moscow is a different good from grapes sold in October 2009 in New York ). Most studies of market structure relax a little their definition of a good, allowing for more flexibility at the identification of substitute-goods. Therefore, one can find an economic analysis of the market of grapes in Russia , for example, which is not a market in the strict sense of general equilibrium theory. Characteristics • Single seller: In a monopoly there is one seller of the good who produces all the output. Therefore, the whole market is being served by a single firm, and for practical purposes, the firm is the same as the industry.
eBook - PDFEconomics
Theory and Practice
- Patrick J. Welch, Gerry F. Welch(Authors)
- 2016(Publication Date)
- Wiley(Publisher)
A monopolistically competitive market has ♦ a large number of sellers—not as many as in pure competition, but a large number nonetheless; ♦ differentiated products—buyers can distinguish among the products of different sellers; and ♦ fairly easy entry into and exit from the market. We frequently find ourselves as buyers in monopolistically competitive markets: coffee shops, restaurants, mall clothing stores, and other retailers where a large num- ber of small shops compete with one another. In these markets each seller’s product is somewhat different: It might be location, parking, service, image, or a variety of other things. Think about your local coffee shops, where the quality of the coffee used to make a latte, or even the crowd that frequents the shop, differentiates one place from another. It is relatively easy to open a small store or shop. A place can be leased; no highly trained workers are needed; and there are minimal capital equipment require- ments. The small cupcake shops that are springing up all over the country exemplify these characteristics. Another slightly different example of a monopolistically competitive market is the labor market for college graduates with a particular major, such as accounting. Each year a large number of accounting majors graduate from colleges and universi- ties. Each of these graduates is unique in terms of grades, background, experience, courses completed, college attended, and initiative. Entry into this market is relatively easy: The major expenditure is the cost of a college degree. Behavior of a Firm in Monopolistic Competition Because of differences in the characteristics of monopolistically competitive and purely competitive markets, there are differences in the behavior of firms in these structures. Notably, unlike pure competitors, monopolistic competitors have some control over the prices they receive for their products, and they engage in nonprice competition.
No longer available |Learn more- (Author)
- 2014(Publication Date)
- Orange Apple(Publisher)
____________________ WORLD TECHNOLOGIES ____________________ Chapter- 8 Market Structure In economics, market structure (also known as the number of firms producing identical products.) • Monopolistic competition, also called competitive market, where there are a large number of firms, each having a small proportion of the market share and slightly differentiated products. • Oligopoly, in which a market is dominated by a small number of firms that together control the majority of the market share. • Duopoly, a special case of an oligopoly with two firms. • Oligopsony, a market, where many sellers can be present but meet only a few buyers. • Monopoly, where there is only one provider of a product or service. • Natural monopoly, a monopoly in which economies of scale cause efficiency to increase continuously with the size of the firm. A firm is a natural monopoly if it is able to serve the entire market demand at a lower cost than any combination of two or more smaller, more specialized firms. • Monopsony, when there is only one buyer in a market. • Perfect competition is a theoretical market structure that features unlimited contestability (or no barriers to entry), an unlimited number of producers and consumers, and a perfectly elastic demand curve. The imperfectly competitive structure is quite identical to the realistic market conditions where some monopolistic competitors, monopolists, oligopolists, and duopolists exist and dominate the market conditions. The elements of Market Structure include the number and size distribution of firms, entry conditions, and the extent of differentiation. These somewhat abstract concerns tend to determine some but not all details of a specific concrete market system where buyers and sellers actually meet and commit to trade.
eBook - PDFEconomics for Investment Decision Makers
Micro, Macro, and International Economics
- Christopher D. Piros, Jerald E. Pinto(Authors)
- 2013(Publication Date)
- Wiley(Publisher)
Chapter 4 The Firm and Market Structures 145 industries are doomed to extinction by a lack of profits. On the contrary, millions of busi- nesses that do very well are living under the pressures of perfect competition. Monopolistic competition is also highly competitive; however, it is considered a form of imperfect competition. Two economists, Edward H. Chamberlin (United States) and Joan Robinson (United Kingdom), identified this hybrid market and came up with the term because there are strong elements of competition in this market structure and also some monopoly-like conditions. The competitive characteristic is a notably large number of firms, while the monopoly aspect is the result of product differentiation. That is, if the seller can convince consumers that its product is uniquely different from other, similar products, then the seller can exercise some degree of pricing power over the market. A good example is the brand loyalty associated with soft drinks such as Coca-Cola. Many of Coca-Cola’s customers believe that the beverage is truly different from and better than all other soft drinks. The same is true for fashion creations and cosmetics. The oligopoly market structure is based on a relatively small number of firms supplying the market. The small number of firms in the market means that each firm must consider what retaliatory strategies the other firms will pursue when prices and production levels change. Consider the pricing behavior of commercial airline companies. Pricing strategies and route scheduling are based on the expected reaction of the other carriers in similar markets. For any given route—say, from Paris, France, to Chennai, India—only a few carriers are in competition. If one of the carriers changes its pricing package, others will likely retaliate. Understanding the market structure of oligopoly markets can help in identifying a logical pattern of strategic price changes for the competing firms.
eBook - PDF- Steven A. Greenlaw, David Shapiro, Daniel MacDonald(Authors)
- 2022(Publication Date)
- Openstax(Publisher)
Most of the markets that consumers encounter at the retail level are monopolistically competitive. The other type of imperfectly competitive market is oligopoly. Oligopolistic markets are those which a small number of firms dominate. Commercial aircraft provides a good example: Boeing and Airbus each produce slightly less than 50% of the large commercial aircraft in the world. Another example is the U.S. soft drink industry, which Coca-Cola and Pepsi dominate. We characterize oligopolies by high barriers to entry with firms choosing output, pricing, and other decisions strategically based on the decisions of the other firms in the market. In this chapter, we first explore how monopolistically competitive firms will choose their profit- maximizing level of output. We will then discuss oligopolistic firms, which face two conflicting temptations: to collaborate as if they were a single monopoly, or to individually compete to gain profits by expanding output levels and cutting prices. Oligopolistic markets and firms can also take on elements of monopoly and of perfect competition. 10.1 Monopolistic Competition LEARNING OBJECTIVES By the end of this section, you will be able to: • Explain the significance of differentiated products • Describe how a monopolistic competitor chooses price and quantity • Discuss entry, exit, and efficiency as they pertain to monopolistic competition • Analyze how advertising can impact monopolistic competition Monopolistic competition involves many firms competing against each other, but selling products that are distinctive in some way. Examples include stores that sell different styles of clothing; restaurants or grocery stores that sell a variety of food; and even products like golf balls or beer that may be at least somewhat similar but differ in public perception because of advertising and brand names. There are over 600,000 restaurants in the United States.
eBook - PDF- Steven A. Greenlaw, Timothy Taylor(Authors)
- 2015(Publication Date)
- Openstax(Publisher)
Most of the markets that consumers encounter at the retail level are monopolistically competitive. The other type of imperfectly competitive market is oligopoly. Oligopolistic markets are those dominated by a small number of firms. Commercial aircraft provides a good example: Boeing and Airbus each produce slightly less than 50% of the large commercial aircraft in the world. Another example is the U.S. soft drink industry, which is dominated by Coca-Cola and Pepsi. Oligopolies are characterized by high barriers to entry with firms choosing output, pricing, and other decisions strategically based on the decisions of the other firms in the market. In this chapter, we first explore how monopolistically competitive firms will choose their profit-maximizing level of output. We will then discuss oligopolistic firms, which face two conflicting temptations: to collaborate as if they were a single monopoly, or to individually compete to gain profits by expanding output levels and cutting prices. Oligopolistic markets and firms can also take on elements of monopoly and of perfect competition. 10.1 | Monopolistic Competition By the end of this section, you will be able to: • Explain the significance of differentiated products • Describe how a monopolistic competitor chooses price and quantity • Discuss entry, exit, and efficiency as they pertain to monopolistic competition • Analyze how advertising can impact monopolistic competition Monopolistic competition involves many firms competing against each other, but selling products that are distinctive in some way. Examples include stores that sell different styles of clothing; restaurants or grocery stores that sell different kinds of food; and even products like golf balls or beer that may be at least somewhat similar but differ in public perception because of advertising and brand names. There are over 600,000 restaurants in the United States.
eBook - PDF- Tucker, Irvin Tucker(Authors)
- 2016(Publication Date)
- Cengage Learning EMEA(Publisher)
Identify each of these forms and explain why it is being used by the oligopolists. 289 Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. oligopoly, firms may compete using nonprice com-petition, rather than price competition. • Short-run equilibrium for a monopolistic competitor can yield economic losses, zero economic profits, or economic profits. In the long run, monopolistic competitors make zero economic profits. Short-Run Equilibrium for a Monopolistic Competitor Profit = $1,800 Price, costs, and revenue (dollars) 35 30 25 20 18 15 10 5 0 1 2 3 4 5 6 7 8 9 10 11 12 Quantity of seafood meals (hundreds per week) MC D MR ATC • Comparing monopolistic competition with perfect competition , we find that in the long run the monopolistically competitive firm does not achieve allocative efficiency, charges a higher price, restricts output, and does not produce where average costs are at a minimum. Comparison of Monopolistic and Perfect Competition Quantity of seafood meals (hundreds per week) LRAC Minimum LRAC D MR MC (a) Monopolistic competition Price, costs, and revenue (dollars) 12 10 8 6 4 2 11 9 7 5 3 1 0 10 20 30 5 17 25 35 Quantity of seafood meals (hundreds per week) LRAC MR MC Minimum LRAC (b) Perfect competition Price, costs, and revenue (dollars) 12 10 8 6 4 2 11 9 7 5 3 1 0 10 20 30 5 16 25 35 • Oligopoly is a market structure characterized by (1) few sellers, (2) either a homogeneous or a differentiated product, and (3) difficult market entry. Oligopolies are mutually interdependent because an action by one firm may cause a reaction from other firms.
- Michal S. Gal, Michal S. GAL(Authors)
- 2009(Publication Date)
- Harvard University Press(Publisher)
It also reduces the self-correct-ing power of market forces to erode dominance. Dominant firms may create all the costs of natural monopoly: mo-nopoly pricing, rent-seeking costs, X-inefficiency, limited product se-lection, impediments to innovation, and the economic and social costs of bigness. Dominance also creates strong incentives and opportuni-ties for the anti-competitive use of market power by the erection of ar-tificial barriers to entry that prevent more efficient firms from entering the market or prevent the expansion of existing firms in the market. Such strategic exclusionary conduct leads rival firms (even more ef-ficient ones) to shrink their output, and enables the monopolist to raise its own price. The efficiency loss involves both the deadweight loss and the loss in production and dynamic efficiency. It also creates distribution of surplus from consumers to producers. The Economic Characteristics of Small Market Economies • 31 Oligopoly Conduct and Performance Most industries in small economies are highly concentrated under an oligopolistic structure: a few firms, protected by high entry barriers, produce a large proportion of the industry’s output. The main con-cern raised by this market structure is that firms may have incentives and opportunities to engage in collusive or cooperative conduct. As markets become more concentrated, the behavior of firms changes as they become more aware of the competitive reaction of their rivals to their output and price decisions, and it becomes easier for firms to co-ordinate these decisions among themselves. Profit maximization un-der oligopolistic structures often implies an engagement in unaggres-sive competitive behavior with respect to strategic decisions such as price and the introduction of new capacity which approximates mo-nopoly decisions. Oligopolistic firms might find it profitable to col-lude, explicitly or implicitly.
eBook - PDF- J. R. Clark(Author)
- 2014(Publication Date)
- Academic Press(Publisher)
10. The total sales of the four top firms in an industry as a percentage of the total sales of the c. barriers to entry are high and market demand is unstable. d. All of the above are correct. 10. The market pricing of an oligopolist's product could be expected to: a. be higher than the price arising from a perfectly competitive market but lower than that of a monopolist b. be lower than the price arising from a perfectly competitive market and lower than that of the monopolist c. be equal to marginal cost d. be equal to the monopolist's price but higher than the price that would arise from a competitive market. Monopolistic Competition and Oligopoly 133 SECTION FOUR Problems and Projects 1. Research and write a paper on competition. What is meant by competition? How does the element of monopoly in monopolistic competition affect the process of competition? Why is competition important if markets are to work efficiently? Can competition protect the consumer from the market power of sellers? Is competition sometimes destructive or counterproductive? Defend or criticize competition as a method of allocating goods and resources. Be specific. Feel free to suggest and defend alternatives that you think are superior to the competitive market process. 2. Suppose that you produce and sell dining tables in a localized market. Past experience permits you to estimate your demand and marginal cost schedules. This information is presented in Exhibit 1. a. Fill in the missing revenue and cost schedules. b. If you were currently charging $55 per dining table set, what should you do if you wanted to maximize profits? Given your demand and cost estimates, what would be the maximum weekly profit you could earn? c. Exhibit 1 Quantity demanded Marginal Total Marginal Fixed Total Price (per week) cost revenue revenue cost cost $60 1 $50 $40 55 2 20 50 3 26 45 4 30 40 5 40 35 6 50 3. Currently there are four rival firms in the typewriter industry.
eBook - PDFMicroeconomics for MBAs
The Economic Way of Thinking for Managers
- Richard B. McKenzie, Dwight R. Lee(Authors)
- 2016(Publication Date)
- Cambridge University Press(Publisher)
Needless to say, economic analysis leads again to a need for carefully crafted balance in regulatory policies. Review questions 1 Under what circumstances could a monopolistic competitor earn an economic profit in the long run? 2 To achieve the efficiency of perfect competition, must a market consist of numerous pro-ducers? If not, what other conditions are required? 3 How does the number of producers in a market affect the chances of forming a worka-ble cartel? 4 How do the costs of entering a market affect the chances of forming a workable cartel? 5 Must a monopolist employer share the monopoly profits with the managers and work-ers? If not, why not? If so, what does “profit sharing” do to the monopolist’s output level? To its prices? 6 Should antitrust laws attempt to eliminate all forms of imperfect competition? Why or why not? 548 Competitive and monopoly market structures 7 “In an economy in which resources can move among industries with relative ease, a car-tel attempting to maximize short-term profits will sow the seeds of its own destruction.” Explain. 8 How would a cartel in a market for a network good collude on price? Explain. 9 Suppose that the managers of a firm allowed their internal departments to act as little monopolies or suppose that the managers paid their workers more than the labor market would bear. What would happen in capital markets? To the firm? 10 Why would you expect the market for corporate control not to work very well when there is a stock-market bubble of the type experienced in the late 1990s and into the early 2000s? Can you explain some of the unethical management behavior and deceptive accounting practices that came to light in the early 2000s as the result, at least partially, of a breakdown in the market for corporate control? 11 Would you expect government-run organizations to be more or less efficient than privately owned firms? Explain your answer with reference to capital markets.
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