Economic Analysis: Oligopoly and Monopolistic Competition Markets

This report examines monopolistic competition and oligopoly market structures, crucial concepts in economics. It begins with an introduction to market structures, highlighting product differentiation and competitive dynamics. The report then delves into oligopoly markets, defining their characteristics (small number of large firms, homogenous or heterogeneous products, price sensitivity) and types (duopoly, pure, and differentiated oligopoly). A case study of the fast-food industry, specifically McDonald's, illustrates oligopolistic behavior, including price-making abilities and the kinked demand curve. The report also explores monopolistic competition, characterized by numerous firms, product differentiation, and competition based on quality, price, and marketing. The beverage industry, with Starbucks and Peet Coffee, serves as a case study, demonstrating product differentiation and its impact on price control and long-run profitability. The report concludes by summarizing the key differences between the two market structures, emphasizing their significance in the real economy and their impact on market dominance and product differentiation. References from academic sources are included to support the analysis.

Monopolistic competition and
Oligopoly markets

Introduction
• Market structure and competition is about changing
behaviour and performances of the firms
• Market are competitive in nature and product
differentiation is part of the market structure
• Real world market is competitive and aggressive

Oligopoly Market
• Have small number large firms
• The products are homogenous and heterogeneous
• The change in price by one affects the other firms
• The fast food industry is part of the oligopoly
structure

Cont....
• Types of oligopoly market
▫Duopoly
▫Pure Oligopoly
▫Differentiated Oligopoly
• Oligopoly are price setter and not price takers
• Have the ability to retain profit

Fast Food Industry Case
• McDonald is one of the leading fast food industry
• It follows the oligopolistic market structure
• Competitors are Burger King and McDonald
• Factors impacting the business: barriers to entry

Cont...
• McDonald acts as a price maker
• Kinked demand curve oligopoly of
McDonald

Monopolistic Competition
• Large number of firms
• Firms compete on the basis of products quality, its
price and marketing
• The slope is downward sloping and the beverage
industry is part of the market structure
• Strive hard for product differentiation

Cont...
• Starbucks and Peet Coffee is an example of
monopolistic competition
• Product differentiation helps to control price
• Firms sell similar products but are not identical
• Low entry barriers

Beverage Industry Case
• Starbucks is one leading coffee retail industry
• Starbucks intends to earn profits in the long run as
per the monopolistic market structure
• The efficiency is neither allocative nor productive
efficiency
• Competing for same customers

Cont...
• Long run equilibrium for the monopolistic
competitive

Conclusion
• Market structure highlights differentiation with the
aim to earn profit
• Monopolistic and oligopoly are part of the real
economy
• Oligopoly dominates market and monopolistic
competition is about product differentiation

References
• Aspremont, C. & Ferreira, R. D. S., 2015. Oligopolistic vs. Monopolistic
Competition: Do Intersectoral Effects Matter?. Core Discussion Paper, pp. 3-
24.
• George Brown College, 2014. Market structures. Documents, pp. 1-5.
• Hagiu, A., 2009. Monopolistic Competition Between Differentiated Products
With Demand For More Than One Variety. Harvard Business School, pp. 1-48.
•
• Mishra, T., 2012. Managerial Economics. School of Management, pp. 1-26.
• Nguyen, D. & Kira, D., 2019. Market Structure, Competition, And Equilibrium
In Electronic Commerce Setting. Research gate, pp. 1-9.