Monopolistic Competition and Oligopoly Markets

MONOPOLISTIC COMPETITION AND OLIGOPOLY
MARKETS
INTRODUCTION
• Market structure: Refers to the market characteristics
which are interconnected (Horstmann & Markusen,
2012, p.109).
• The interconnected characteristics include:
the number, level and forms of firm’s competition,
the number and power of buyers and sellers in the
market and their overall ability to collude,
the scope of product differentiation and
the barriers to entry and exit from the market

Categorization of market structures
• Based on the interconnected characteristics,
market structures are classified into four
categories namely(Slade, 2016, p.347):
 Perfect competition
 Monopoly
 Monopolistic competition and
 Oligopoly market structures

Monopolistic competition market structure
Definition: It is an imperfect
competition whereby
many firms in the market
sell products which are
differentiated from each
other and this therefore
means that the products
are not each other’s perfect
substitutes but are close
substitutes (Blanchard,
O.J. and Kiyotaki, N.,
2011, p.647).
Characteristics
 Large number of buyers and
sellers
 Product differentiation (Eaton
& Lipsey, 2009, p.723)
 Free entry and exit (Bresnahan
& Reiss, 2011, p.977)
 Some control over price (Neal,
2015, p.317)
 High costs of advertizing and
selling (Comanor & Wilson,
2012, p.25)