TAILIEUCHUNG - Lecture Economics: Chapter 15 - Dean Karlan, Jonathan Morduch

Chapter 15 - Monopolistic competition and oligopoly. In this chapter you will learn: What the features of oligopoly and monopolistic competition are? How to calculate the short‐run and long‐run profit‐maximizing price and quantity for a monopolistically competitive firm? What the welfare costs of monopolistic competition are?. | Chapter 15 Monopolistic Competition and Oligopoly © 2014 by McGraw‐Hill Education 1 What will you learn in this chapter? • What the features of oligopoly and monopolistic competition are. • How to calculate the short‐run and long‐run profit‐maximizing price and quantity for a monopolistically competitive firm. • What the welfare costs of monopolistic competition are. • How product differentiation motivates advertising and branding. • What the strategic production decision of firms in an oligopoly is. • Why firms in an oligopoly have an incentive to collude, and why they might fail to do so. • How to compare the welfare of producers, consumers, and society as a whole in an oligopoly to monopoly and perfect competition. © 2014 by McGraw‐Hill Education 2 What sort of market? What sort of market is the music industry? • Dominated by four labels. Sony Universal – None big enough to dominate the industry. – Not a monopoly market. • Products are not standard. – Not a perfectly competitive market. Warner EMI Other firms © 2014 by McGraw‐Hill Education • Two markets lie between the extreme models of monopoly and perfect competition. – – Oligopoly. Monopolistic competition. 3 1 Oligopoly and monopolistic competition • An oligopoly is a market with a few firms selling a similar good or service. – Strategic interactions between a firm and its rivals have a major impact on its success. • An individual firm’s price and quantity affect others’ profitability. • No interaction in perfectly competitive or monopoly markets. – Existence of some barrier to entry. • These barriers to entry may be overcome, but it may be costly. © 2014 by McGraw‐Hill Education 4 Oligopoly and monopolistic competition • Monopolistic competition describes a market with many firms that sell similar, but differentiated, goods and services. – Able to earn a positive profit in the short run by selling a differentiated product. – .

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