1. Chapter 12 Imperfectly Competitive Markets

2. Imperfectly Competitive Markets • There are three categories of imperfect competition among sellers • Monopoly • Monopolistic Competition • Oligopoly

3. Monopolies • Characteristics of monopolies are: • Single seller • Unique Product, i.e., there are no close substitutes • Ability to Set Prices (monopolist is a price maker; discriminating monopolists charge different prices to different classes of consumers) • Barriers to Entry (a monopoly generally has an economic, legal or technical barrier to entry to other firms)

4. Monopoly • Strictly speaking, a pure monopoly - a one firm industry - is rare. • Monopolies may arise because sometimes it is the most efficient way to organize production and marketing activities. • Instead of breaking up monopolies in the US, it has been common policy to regulate them. • The government has established many agencies to protect consumers from the adverse consequences of oligopolies & monopolies • Interstate Commerce Commission regulates transportation • Federal Communication Commission regulates telephone rates, tv, radio, etc. • State & Local Power Commissions regulate local utilities

5. Monopolistic Competition • Monopolistic Competition differs from Perfect Competition in the following ways: • Differentiated Products (main difference from pure competition. • Many firms, but fewer than under perfect competition • Limited control over prices • A firm cannot increase prices significantly without losing customers to competitors.

6. Monopolistic Competition • Limited or restricted entry • Entry is more difficult than in a perfectly competitive market • Firms are fairly large, and capital requirements are substantial • Advertising dollars alone can create a barrier to entry • Emphasis on brand names associated with higher quality

7. Oligopolies • Oligopoly means “few sellers” • Characteristics of Oligopolies are: • Few Sellers - (ex. auto manufactures, oil industries, etc.) • Some control over prices • Control over prices is limited due to interdependence with other firms (to avoid price wars) • Among oligopolistic industries are: • Major farm machinery companies • Farm chemical companies • Major meat packers

8. Oligopolies • Oligopolistic industries can result from: • More extreme product differentiation • Higher entry costs • Greater dependence on costly & long-term research & development efforts • Easier access to major financial markets • Aggressive merger & acquisition strategies