Question

List an example of at least one firm/industry for oligopoly and one firm/industry for monopolistic competition that has not already been covered in the textbook or power points.

Explain the following for each market structure example:
1. Why do you think each firm would be operating in that market structure? Justify your answer.
2. Would the different firms have market power or would they be price takers?
3. How is market structure determined?
4. How much product differentiation would each firm/industry use to market their product?
5. In which market structure would firms experience the lowest overall profits? the highest?

Answer 1

Oligopoly is a market structure which consists of few large firms with substantial barriers to entry. Each firm is competing for a higher concentration in the market and each firm is dependent on the actions of the other firms. On the other hand in a monopolistic competitive structure contains a large number of small firms that have the freedom to enter and exit. Each firm takes independent decisions about price and outcome.

Firstly, the difference exists in terms of the market size and control on the basis of the number of competitors in the market. For example, if there are 1000 relatively same size firms is considered as a monopolistic competition whereas the same number of firms where only four firms are relatively large in size is known as oligopoly market. The second characteristic is their geographical area, oligopoly market exists in small cities and monopolistic in large cities

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