MODULE 2 (PT2)

• Imperfect competition is between the extremes of monopoly and perfect competition.
• An imperfect competitive market may be classified as what?

  Monopoly

  Monopolistic competition

  Oligopoly

  • Duopoly
• MONOPOLY - a firm is one that produces the entire market supply of a particular good or service
• MONOPOLISTIC COMPETITION - many firms supply essentially the same product but each has brand loyalty
• OLIGOPOLY - a few large firm supply all or most of a particular product
• DUOPOLY - only two firm supply a particular product
• Monopoly refers to the market situation where there is one seller and there is no close substitute to the commodities sold by the seller.
• Monopoly is a form of market structure where there is a single seller producing a commodity having no close substitute.
• The word monopoly is derived from two Greek word - Mono and Poly. Mono means single and Poly means "seller", thus monopoly means single seller.
• WHAT ARE THE FEATURE OF MONOPOLY?

  Single seller and large number of buyers

  No close substitute

  Restrictions on the entry of new firm

  Price maker

  Possibility of price discrimination
• SINGLE SELLER AND LARGE NUMBER OF BUYERS

  under monopoly there is one seller and therefore a firm faces no competition from other firms.
• NO CLOSE SUBSTITUTE

  Under monopoly there is no close substitute for the product sole by the monopolist.
• RESTRICTIONS ON THE ENTRY OF NEW FIRM

  ·        Under monopoly new firms cannot enter the industry.
• PRICE MAKER

  a monopoly firm has full control over the supply of its products and hence it has full control over its price also.
• POSSIBILITY OF PRICE DISCRIMINATION

  Price discrimination refers to the market situation where single seller sells the same commodity at two different prices in two different markets at the same time
• MONOPOLISTIC COMPETITION

  It is that form of market in which there are large numbers of sellers selling different products which are similar in nature but not homogenous.
• MONOPOLISTIC COMPETITION is a market situation in which both monopoly and competitive elements are present.
• Product differentiation refers to the activity created differences in products with respect to brand, trademark, design, packaging, color, size, measurement, weight, such that though the products are similar
• WHAT ARE THE FEATURES OF MONOPOLISTIC COMPETITION?

  Large numbers of sellers and buyers

  Product differentiation

  ·        Real differentiation

  ·        Artificial differentiation

  Non-price competition

  Selling cost

  Free entry and free exit

  Independent price policy
• LARGE NUMBERS OF SELLERS AND BUYERS

  the number of sellers is large and each other act independently without any mutual dependence.
• PRODUCT DIFFERENTIATION

  Most of the firms under monopolistic competition sell products which are not homogenous in nature but are close substitutes.
• REAL DIFFERENTIATION - this type of product differentiation arises due to differences in the quality of inputs used in making these products, differences in location of firms and their sales service.
• ARTIFICIAL DIFFERENTIATION - It is made by the sellers in the minds of the buyers of those products through advertisements, attractive packaging etc.
• NON-PRICE COMPETITION

  in this case, different firms may compete with each other by spending a huge sum of money on advertisements keeping the product prices unchanged.
• SELLING COST

  expenditures incurred in advertisements and sales promotion by a firm to promote sale of its product is called selling cost.
• FREE ENTRY AND FREE EXIT

  there are no restrictions on the entry of new firms and the firms decide to leave the industry.

  Every firm under monopolistic competition earns only normal profits in the long-run and there arises no supernormal profit or loss.
• INDEPENDENT PRICE POLICY

  a firm under monopolistic competition can influence the price of commodity to some extent and hence they face an inverse relationship between price and quantity.
• Oligopoly is a market situation in which there are few firms producing either differential goods or closely differential goods.
• The number of firms is so small that every seller is affected by the activities of the others.

  Few sellers

  Interdependence

  Advertising

  Competition

  Entry and exit barrier

  Lack of uniformity
• Oligopoly is also called competition amongst the few
• OLIGOPOLY MAY BE OF TWO TYPES?

  1. Pure oligopoly or oligopoly without product differentiation

  2) Differentiated oligopoly or oligopoly with product differentiation
• WHAT ARE THE CHARACTERISTICS OF OLIGOPOLY?

  Few Sellers

  Control Over Supply

  Inter-Dependence of Firms

  Conflicting Attitudes of Firms

  Lack Of Uniformity of Size of Firms

  Advertising and Selling Costs

  Price Rigidity

  Indeterminateness of Demand Curve
• WHAT ARE THE FEATURES OF OLIGOPOLY?

  Few Sellers

  Interdependence

  Nature of Product

  Barrier to Entry
• FEW SELLERS

  there are few sellers in oligopoly market, such that number of sellers is small that each and every seller is affected by the activities of the others.
• INTERDEPENDENCE

  among firms is the most important characteristic under oligopoly.
• NATURE OF PRODUCT

  A firm under oligopoly may produce homogenous goods which is called oligopoly without product differentiation.
• Oligopoly may also produce differential products which is called oligopoly with product differentiation.
• BARRIER TO ENTRY

  the existence of oligopoly in the long run requires the existence of barrier to the entry of the new firms.
• DUOPOLY

  It is a specific type of oligopoly where only two producers exist in one market.
• Duopoly provides a simplified model for showing the main principles of the theory of oligopoly:

  the conclusions drawn from analyzing the problem or two sellers can be extended to cover situations in which there are three or more sellers.