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Monopolistic competition, a type of imperfect competition such that many producers sell
products or services that are differentiated from one another (e.g. by branding or quality) and
hence are not perfect substitutes. 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. Textbook
examples of industries with market structures similar to monopolistic competition
include restaurants, cereal, clothing, shoes, and service industries in large cities.
Oligopoly, in which a market is run by a small number of firms that together control the
majority of the market share. For example, there are now only a small number of manufacturers
of civil passenger aircraft, though Brazil (Embraer) and Canada (Bombardier) have participated in
the small passenger aircraft market sector.
Duopoly, a special case of an oligopoly with two firms. The most commonly cited
duopoly is that between Visa and Mastercard, who between them control a large proportion
of the electronic payment processing market. In 2000 they were the defendants in a US
industry, space industry, and the government-funded and government-regulated prison industry.
Oligopsony, a market where many sellers can be present but meet only a few buyers. One
example of an oligopsony in the world economy is cocoa, where three firms (Cargill, Archer
Daniels Midland, and Barry Callebaut) buy the vast majority of world cocoa bean production,
Market
Seller
Seller
Buyer
Buyer
Structur
Entry
Numbe
Entry
Numbe
Barriers
Barriers
Perfect
No
Many
No
Many
No
Many
No
Many
Oligopsony
No
Many
Yes
Few
Monopoly
Yes
One
No
Many
Competition
Monopolisti
c
competition
3. How competition influences market behavior affects the way the market will function in the long run.
Competitive behaviour is the degree to which individual firms compete against each other to
gain higher market shares, earn higher profits, etc. It is also the manner in which firms compete
against each other (advertising, pricing policies, customer service, etc.)
In understanding market behavior, we often speak of the competitive spectrum that is a continuum
from the competitive ideal with many firms in a given industry and a high degree of competition to
monopoly behavior where a single firm dominates an industry and competitive behavior does not
exist.
This spectrum is defined based on three primary market characteristics:
The Number of Firms in an Industry
Barriers to Market Entry (or Exit)
The Type of Good offered for sale
These characteristics along with different market structures are summarized in the following table:
At one end of the spectrum, we have a competitive ideal that represents a standard by which
we evaluate all other types of competitive behavior. At the other end, monopoly represents an
absolute lack of competition such that the single firm in the industry has a high degree of price-making
ability.