Monopolistic Competition and Oligopoly
chapter Eleven monopolistic competition and oligopoly
CHAPTER OVERVIEW
Pure competition and pure monopoly are the exceptions, not the rule, in the U.S. economy. In this chapter, the two market structures that fall between the extremes are discussed. Monopolistic competition contains a considerable amount of competition mixed with a small dose of monopoly power. Oligopoly, in contrast, implies a blend of greater monopoly power and less competition.
First, monopolistic competition is defined, listing important characteristics, typical examples, and efficiency outcomes. Next we turn to oligopoly, surveying the possible courses of price, output, and advertising behavior that oligopolistic industries might follow. Finally, oligopoly is assessed as to whether it is an efficient or inefficient market structure.
This was Chapter 23 in the 17th edition.
INSTRUCTIONAL OBJECTIVES
After completing this chapter, students should be able to: 1. List the characteristics of monopolistic competition. 2. Explain how product differentiation occurs in similar products. 3. Determine the profitmaximizing price and output level for a monopolistic competitor in the short run when given cost and demand data. 4. Explain why a monopolistic competitor will realize only normal profit in the long run. 5. Identify the reasons for excess capacity in monopolistic competition. 6. Explain how product differentiation may offset these inefficiencies. 7. Describe the characteristics of an oligopolistic industry. 8. Differentiate between homogeneous and differentiated oligopolies. 9. Identify and explain the most important causes of oligopoly. 10. Describe and compare the concentration ratio and the Herfindahl index as ways to measure market dominance in an industry. 11. Use a profit-payoffs matrix (game theory) to explain the mutual interdependence of two rival firms and why oligopolists might tempt to
CHAPTER OVERVIEW
Pure competition and pure monopoly are the exceptions, not the rule, in the U.S. economy. In this chapter, the two market structures that fall between the extremes are discussed. Monopolistic competition contains a considerable amount of competition mixed with a small dose of monopoly power. Oligopoly, in contrast, implies a blend of greater monopoly power and less competition.
First, monopolistic competition is defined, listing important characteristics, typical examples, and efficiency outcomes. Next we turn to oligopoly, surveying the possible courses of price, output, and advertising behavior that oligopolistic industries might follow. Finally, oligopoly is assessed as to whether it is an efficient or inefficient market structure.
This was Chapter 23 in the 17th edition.
INSTRUCTIONAL OBJECTIVES
After completing this chapter, students should be able to: 1. List the characteristics of monopolistic competition. 2. Explain how product differentiation occurs in similar products. 3. Determine the profitmaximizing price and output level for a monopolistic competitor in the short run when given cost and demand data. 4. Explain why a monopolistic competitor will realize only normal profit in the long run. 5. Identify the reasons for excess capacity in monopolistic competition. 6. Explain how product differentiation may offset these inefficiencies. 7. Describe the characteristics of an oligopolistic industry. 8. Differentiate between homogeneous and differentiated oligopolies. 9. Identify and explain the most important causes of oligopoly. 10. Describe and compare the concentration ratio and the Herfindahl index as ways to measure market dominance in an industry. 11. Use a profit-payoffs matrix (game theory) to explain the mutual interdependence of two rival firms and why oligopolists might tempt to