Study Notes
Imperfect competition includes market structures like monopolistic competition and oligopoly, where firms have some market power and face downward-sloping demand curves. Monopolistic competition — a market structure with many firms, low barriers to entry, and product differentiation. Example: Restaurants offering different cuisines. Oligopoly — a market structure dominated by a few large firms with high barriers to entry and interdependent decision-making. Example: The automobile industry. Collusive oligopoly — firms agree to limit competition by fixing prices or output. Example: OPEC's oil production agreements. Non-collusive oligopoly — firms compete without explicit agreements, often leading to 'sticky' prices. Example: Airlines adjusting prices based on competitors.
Exam Tips
Key Definitions to Remember
- Monopolistic competition
- Oligopoly
- Collusive oligopoly
- Non-collusive oligopoly
Common Confusions
- Confusing monopolistic competition with monopoly due to the name similarity
- Misunderstanding the concept of 'sticky' prices in non-collusive oligopolies
Typical Exam Questions
- What is monopolistic competition? A market structure with many firms, low barriers to entry, and product differentiation.
- How does an oligopoly differ from perfect competition? Oligopolies have few large firms with high barriers to entry and interdependent pricing.
- What is the kinked demand curve? A model explaining price rigidity in non-collusive oligopolies.
What Examiners Usually Test
- Ability to draw and interpret diagrams for monopolistic competition and oligopoly
- Understanding of the welfare implications and inefficiencies in these market structures
- Differences between collusive and non-collusive oligopolies