![]() ![]() See McConnell, Brue, and Campbell (2004). Sample sectors include steel, copper, autos, breakfast cereals, tires, some appliances, and home-care equipment. An oligopolistic market is characterized by low levels of product differentiation and very high fixed costs of entry, where competition is often based on price with elements of both price taking and price leadership. There are a small number of firms (e.g., 2–8) and they control more than 50% of the market. An oligopoly is a special case of a monopoly. The goal is to rake in lots of money in the short term because your company is the only seller of a slightly differentiated product or service. All businesses should strive to compete as a monopolist, even if it is in the short term. In actuality, every business would like to control the market, set the price, and be a monopolist. In a perfectly competitive market, companies sell their products at prevailing market prices where marginal revenue equals marginal cost. In perfectly competitive markets, there are many sellers and buyers, and entry into and out of the market is easy. In essence, consumers and producers determine the market price for a product or service. For example, Apple developed the iPod to compete with existing MP3 players.Īccording to standard economic theory, a purely competitive market has many buyers and sellers and each individual firm is a price taker. The products are sort of quasi-substitutes, but they still resemble the original product or service. The key strategy for competing in markets characterized by monopolistic competition is to offer products that are differentiated. Most businesses strive to be price setters within a certain range of prices by offering a product that is closely related, but not exactly identical to other products in the market. is a price setter and a business competing in a perfectly competitive market is a price taker. The list includes jewelry, movie production, food, entertainment, many electronic gadgets and components, some durable goods, books, crafts, soda, houses, cars, consulting businesses, software, game consoles, restaurants, bars, and so forth.Ī monopolist A price setter. Indeed, most products and services are sold in markets characterized by monopolistic competition. Usually, the buyers and sellers also have good information on the attributes of the products and the prices of the products in the marketplace. They have features that differentiate them from the competition. The sellers in these markets sell products that are closely related, but not identical. Monopolistic competition involves many buyers, many sellers, and easy exit and entry, with slightly differentiated products. The idea behind monopolistic competition is simple in form and powerful in practice. It is considered by some economists to have the same stature as John Maynard Keynes’s General Theory in revolutionizing economic thought in the 20th century. Edward Chamberlin published the foundations of monopolistic competition in his 1933 book entitled The Theory of Monopolistic Competition. ![]()
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