|Monopolistic Competition and Oligopoly|
AFTER READING THIS CHAPTER, YOU SHOULD BE ABLE TO:
Monopolistic competition and oligopoly are market environments between the two extremes of perfect competition and monopoly. Monopolistic competition is characterized by many sellers, firms selling a differentiated product, multiple dimensions of competition, and easy entry of new firms in the long run. It is this easy entry of new firms that reduces the possibility of long-run profit for monopolistically competitive firms. Most real world markets are monopolistically competitive.
The central element of oligopoly is that there are few firms in the industry. Any decision a firm makes must take into account the expected reaction of other firms. Oligopolies can be collusive or non-collusive. Two informal models of oligopoly behavior presented in this chapter are the cartel model and the contestable market model.
To make claims about market structure in real-world markets, economists use a number of empirical estimates, like concentration ratios and the Herfindahl index.
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