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Monopolistic competition and oligopoly

Published on September 26, 2019   25 min

A selection of talks on Finance, Accounting & Economics

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0:00
Hi. I'm Dr. Sangaralingam Ramesh. Welcome to talk number 12 in the Henry Stewart Talks series introduction to microeconomics. In this talk, we'll be looking at the two remaining market structures: monopolistic competition and oligopoly.
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In the previous talk, we've looked at the characteristics of firms in a monopolistic competitive market, but we can reiterate some of the assumptions of monopolistic competition. In this case, there are many buyers and sellers, but each firm in a monopolistic competitive market is not a price taker. Rather than saying there are many buyers and sellers, we can say that there are several firms. Secondly, each firm in a monopolistic competitive market settles a slightly differentiated product which means that each firm rather than being a price taker becomes a price searcher, which means that the firm has to be able to compare its product with the product of other firms in the market, and thereby, search for a suitable price that can allow its goods to be sold. However, similarly to a perfectly competitive market, in a monopolistic competitive market, there are costless entry and exit. In other words, firms can enter the market if there are supernormal profits being made and exit the market once those supernormal profits have been reduced to normal profits. In the case of elasticity of demand, we could say that the elasticity of demand for products sold by a monopolistic competitive firm is not as big as for a perfectly competitive firm, simply because the products are slightly differentiated in a monopolistic competitive market, whereas in a perfectly competitive market, each firm is assumed to sell an identical or homogeneous product. For this reason, the reason that products sold by firms in a monopolistic competitive market are differentiated, the demand curve phase by each firm in a monopolistic competitive market is, therefore, downward sloping.