Imperfect or Monopolistic Competition

–Many buyers and sellers
– Products differentiated
– Relatively free entry and exit
– Each firm may have a tiny ‘monopoly’ because of the differentiation in their product
– Firm has some control over price
– Examples: Restaurants, professions-- solicitors etc., building firms-- plasterers, plumbers etc.

Oligopoly-- Competition amongst the few
– Industry dominated by small number of large firms
– Many firms may make up the industry
– High barriers to entry
– Products could be highly differentiated-- branding or homogenous
– Non-price competition
– Price stability within the market-- kinked demand curve?
– Potential for collusion?
– Abnormal profits
– High degree of interdependence between firms

Examples of Oligopolistic Structures:
– Supermarkets
–Banking Industry
–Chemicals
– Oil
–Medicinal drugs
– Broadcasting


Measuring Oligopoly:
• Concentration ratio-- the proportion of market share accounted for by top 10 number of firms:
– E.g., 5 firm concentration ratio of 80%-- means top 5 five firms account for 80% of market share
– 3 firm CR of 72%-- means top 3 firms account for 72% of market share

Duopoly:
• Industry dominated by two large firms
• Possibility of price leader emerging-- rival will follow price leader’s pricing decisions
• High barriers to entry
• Abnormal profits likely