You’ve likely played
the game, but have
you ever stopped
to ask yourself why
it was called that?
 Notice
there are 4:
 Monopoly
 Oligopoly
 Monopolistic Competition
 Pure Competition
 Let’s look at them one at a time and
compare
Monopoly
 Exists
when a specific person or enterprise is
the only supplier of a particular commodity
 Monopolies are thus characterized by a lack
of economic competition to produce the
good or service and a lack of viable
substitute goods.
 Monopolies have relatively high barriers to
entry.
 A monopoly can preserve excess profits
because barriers to entry prevent
competitors from entering the market.
 Examples: The school cafeteria or NS Power
Oligopoly
 An
oligopoly is a market form in which a
market or industry is dominated by a
small number of sellers.
 Because there are few sellers, each
oligopolist is likely to be aware of the
actions of the others. The decisions of
one firm influence, and are influenced by,
the decisions of other firms.
 Barriers to entry are high.
 In
some situations, the firms may employ
restrictive trade practices (collusion, market
sharing etc.) to raise prices and restrict
production in much the same way as a
monopoly. Where there is a formal
agreement for such collusion, this is known
as a cartel. A primary example of such a
cartel is OPEC which has a profound
influence on the international price of oil.
 Oligopolies
are typically composed of a few
large firms. Each firm is so large that its
actions affect market conditions. Therefore
the competing firms will be aware of a firm's
market actions and will respond
appropriately. This means that in
contemplating a market action, a firm must
take into consideration the possible reactions
of all competing firms and the firm's
countermoves
 Examples: Three companies (Rogers Wireless,
Bell Mobility and Telus) share over 94% of
Canada's wireless market.
Pure Competition
Ah, the Holy Grail of western culture.
 perfect competition describes markets such that
no participants are large enough to have the
market power to set the price of a homogeneous
product. Because the conditions for perfect
competition are strict, there are few if any
perfectly competitive mark
 Infinite consumers with the willingness and
ability to buy the product at a certain price, and
infinite producers with the willingness and
ability to supply the product at a certain price.
ets.

 Zero
entry and exit barriers – It is relatively
easy for a business to enter or exit in a
perfectly competitive market.
 Perfect factor mobility - In the long run
factors of production are perfectly mobile
allowing free long term adjustments to
changing market conditions.
 Perfect information - Prices and quality of
products are assumed to be known to all
consumers and producers
 Example: Soft drink beverages, pizza shops in
Sack-vegas!
Monopolistic Competition
 Monopolistic
competition is a form of
imperfect competition where many
competing producers sell products that are
differentiated from one another (that is, the
products are substitutes but, because of
differences such as branding, not exactly
alike).
 There are many producers and many
consumers in the market, and no business
has total control over the market price.
 Consumers
perceive that there are non-price
differences among the competitors' products.
 There are few barriers to entry and exit.
 In
a monopolistically competitive market,
firms can behave like monopolies in the short
run, including by using market power to
generate profit. In the long run, however,
other firms enter the market and the
benefits of differentiation decrease with
competition; the market becomes more like
a perfectly competitive one where firms
cannot gain economic profit.
 Examples: Computer operating systems or
hair dressers. What about iPads or
Blackberrys?
 In
other words, what is the effect on you and
I?
 Let’s think about the example of the various
market structures we discussed. That should
give us some clues.
 When
not coerced legally to do otherwise,
monopolies typically maximize their profit by
producing fewer goods and selling them at
higher prices than would be the case for
perfect competition.
 Monoplies have great market power. That is,
they can change the price at will.
 Prices tend to be higher in monopolies then
they would be in pure competition.
 The case of AT&T.
Oligopolies are price setters rather than price
takers. Which tends to result in higher prices.
 Oligopolies can retain long run abnormal profits.
High barriers of entry prevent sideline firms from
entering market to capture excess profits.
 For example, an oligopoly considering a price
reduction may wish to estimate the likelihood
that competing firms would also lower their
prices and possibly trigger a ruinous price war.
Or if the firm is considering a price increase, it
may want to know whether other firms will also
increase prices or hold existing prices constant.

 In
monopolistic competition, a firm takes the
prices charged by its rivals as given and
ignores the impact of its own prices on the
prices of other firms.
 Producers have a degree of control over
price.
 In general, monopolies, oligopolies and
monopolistic competitions result in both
higher prices and general inefficiencies.