This document provides an overview of monopolistic competition and oligopoly market structures. It defines monopolistic competition as having many differentiated product firms, easy entry and exit, and firms competing on both price and product differentiation. The document discusses how a monopolistically competitive firm sets price where marginal cost equals marginal revenue in the short run, but earns zero economic profit in the long run. It then defines oligopoly as having a small number of large firms, high barriers to entry, and the potential for both differentiated and homogeneous products. The document proceeds to describe a kinked demand curve model of non-collusive oligopoly price rigidity.

1. Monopolistic Competition and
Oligopoly
Submitted by:
Surbhi Goel
R2
13609178

2. INTRODUCTION
Monopolistic competition is a market structure
in which there are many firms selling
differentiated. Monopolistic competition is a
market structure in which:
–There are a large number of firms
–The products produced by the different firms
are differentiated
–Entry and exit occur easily

3. PRODUCT DIFFERENTIATION
Product differentiation implies that the
products are different enough that one brand
is different from other brand
• The firms compete more on product
differentiation than on price.
• firms produce close substitutes, not an
identical product.

4. Output, Price, and Profit of a
Monopolistic Competitor in shor run:
• A monopolistically competitive firm prices in the
same manner as a monopolist—where MC = MR.
• But the monopolistic competitor is not only a
monopolist but a competitor as well.
• The demand curve faced by a monopolistically
competitive firm is negatively sloped but it is
much flatter than that of a monopolist because of
close substitutability of the products.

5. A Monopolistically Competitive Firm:

6. Output, Price, and Profit of a
Monopolistic Competitor in long run:
• At long run equilibrium, ATC equals price and
economic profits are zero.
• This occurs at the point of tangency of the ATC
and demand curve at the output chosen by the
firm.

7. LONG RUN:

8. OLIGOPOLY
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•
•
•
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Oligopoly –Competition amongst the few
Industry dominated by small number of large
firms
High barriers to entry
Products could be highly differentiated –
branding or homogenous
Both Price and Non–price competition
Firms are interdependent

9. PRICE RIGIDITY MODEL ( Non
Collusive)
THE KINKED DEMAND CURVE THEORY
• This model recognizes that demand for a
firm’s product is determined both by the
market demand for a product as well as by
rival firm’s behaviour

10. Kinked Model
• Demand Curve is kinked. MR curve is
discontinuous. If MC curve passes through the
discontinuous portion of the MR curve then
equilibrium is at kink.
• Greater the difference between the two
segments of the demand curve, higher will be the
length of the discontinuous portion of the MR
curve.
• Even if MC curves go up or go down , the
equilibrium remains stable at the kink. This model
is also called sticky price model.

11. THANK YOU