Comparing Market Structures
- Market structurse comparison
Perfect Competition
|
Monopolistic Competition
|
Oligopoly
|
Monopoly
| |
Number of firms
|
Infinite
|
Many
|
Few
|
One
|
Freedom of entry
|
Easy
|
Easy
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Difficult
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Very difficult
|
Product differentiation
|
None
|
High
|
Absolute
(across industries)
|
Yes
|
Implications for demand curve
|
Perfectly elastic
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Highly elastic
|
Relatively inelastic
|
Relatively inelastic
|
Average size of firms
|
Small
|
Small
|
Large
|
Large
|
Possible consumer demand
|
Consumer demand set in equilibrium price
|
Consumer demand is different with each firm.
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Consumer demand is changed by price change.
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Consumer demand determined by price change
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Profit making possibility
|
Earn normal
(Not economic, profits in long run
|
Lower efficiency from consumer preferences
(Not economic, no profits in long run)
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Profitability,
Price > MC
(Long run profits are possible.)
|
Not always profitable
P=MR=MC=Demand
If MR>MC, profitable
|
Government intervention
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Basic regulations
|
Entry may be blocked by law or regulation
|
Laws control to regulate monopoly & oligopoly or to protect consumer
| |
A new example
|
Commodities like a wheat
|
Different soaps have same basic material but have different features like odour, shape
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Oil, Automobile, cigarette
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SAQ (Société des alcools du Québec) and LIPA (Long Island Power Authority).
|
Features
|
Easy entry means all firms earn normal.
|
Advertising is important for product differentiation.
|
Advertising is important part of competition.
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Advertising and innovations are not necessary.
|
Perfect Competition
Maximum profits cause when total revenue is over the total cost. In the points TC is same with TR, they are break-even points.
Monopolistic competiton
The firm maximizes its profits by equating marginal cost with marginal revenue. The intersection of the marginal cost and marginal revenue curves determines the firm's equilibrium level of output.
Oligopoly
There are two theories that explain oligopoly and they are Kinked-demand theory and Cartel theory. Kinked-demand theory can be applied when each firm sells differentiated products. Each firm can face two demand curves.
There are two theories that explain oligopoly and they are Kinked-demand theory and Cartel theory. Kinked-demand theory can be applied when each firm sells differentiated products. Each firm can face two demand curves.
Long-run equilibrium- Monopolistic competition
Short-run equilibrium- Monopolistic competition
Monopoly
Profit maximizing in the monopoly is found by equating its marginal cost with marginal revenue. It is the sale condition with perfect competition.
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