Market Structure - Imperfect Competition II

Summary

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