Module 9: Monopoly, Monopolistic Competition, and Oligopoly
Section outline
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Many believe that top executives at firms are the strongest supporters of market competition, but this belief is far from the truth. Think about it this way: If you very much wanted to win an Olympic gold medal, would you rather be far better than everyone else, or locked in competition with many athletes just as good as you? Similarly, if you would like to attain a very high level of profits, would you rather manage a business with little or no competition, or struggle against many tough competitors who are trying to sell to your customers? Monopolistic competition involves many firms competing against each other, but selling products that are distinctive in some way. When products are distinctive, each firm has a mini-monopoly on its particular style or flavor or brand name. However, firms producing such products must also compete with other styles and flavors and brand names. The term “monopolistic competition” captures this mixture of mini-monopoly and tough competition. Let's explore these various types of competition.
Upon completion of this module, you will be able to:
- Distinguish between a natural monopoly and a legal monopoly.
- Explain how economies of scale and the control of natural resources led to the necessary formation of legal monopolies
- Analyze the importance of trademarks and patents in promoting innovation
- Identify examples of predatory pricing
- Explain the perceived demand curve for a perfect competitor and a monopoly
- Analyze a demand curve for a monopoly and determine the output that maximizes profit and revenue
- Calculate marginal revenue and marginal cost
- Explain allocative efficiency as it pertains to the efficiency of a monopoly
- Explain the significance of differentiated products
- Describe how a monopolistic competitor chooses price and quantity
- Discuss entry, exit, and efficiency as they pertain to monopolistic competition
- Analyze how advertising can impact monopolistic competition
- Explain why and how oligopolies exist
- Contrast collusion and competition
- Interpret and analyze the prisoner’s dilemma diagram
- Evaluate the tradeoffs of imperfect competition
To achieve these objectives: [Edit these items to match your resources and activities.]
- Read the Module 9 Introduction
- Read and view the materials in the Module 9 Pressbooks book, Microeconomics.
- Complete Module 9 Discussion Forum.
- Complete Module 9 Quiz.
- Read Chapter # in Textbook Title, Article Title, etc.
[Include all reading assignments here that are outside of Moodle. Be as
concise as possible. More information can be included in the
third-party section below, if necessary.]
- Complete the [specific activities in the module. Include all in the order you want them completed.]
Module Pressbooks Resources and Activities
You will find the following resources and activities in this module at the Pressbooks website. Click on the links below to access or complete each item.
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Students mustMark as done
Chapter 9 of Introduction to Microeconomics
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Students mustMark as done
Module 9 In Class Activity (hide from students)
Course SLO 1: Identify the basic economic principles that serve as the foundation of economic analysis
Course SLO 3: Analyze the economic impact of government regulation, price setting, and taxes on consumers and producers
Course SLO 7: Analyze the performance of firms under different market structuresModule SLO: 9.1.1 – Distinguish between a natural monopoly and a legal monopoly
Module SLO: 9.2.4 – Explain allocative efficiency as it pertains to the efficiency of a monopoly
When we consider monopolies, it is interesting to note that in the long run, most perceived monopolies do have to compete with other monopolies. That is, if my electric company is bad, I can move to another electric company’s zone. For this discussion, you should consider the short run where it may not be an option to simply move to an area served by another company. For this discussion, your task is to:
- Think of a monopoly that is prevalent in your life and identify whether it is a natural or legal monopoly
- Describe some benefits of your monopoly being a monopoly for the consumer
- Explain some drawbacks
of your monopoly being a monopoly for the consumer.
Instructor Notes:
Examples of natural monopolies might include gas network, electric grid, railway infrastructure, or natural fibre-optic broadband network. A legal monopoly might include utilities run by the city.
We often emphasize that monopolies lead to higher prices and lower quantities, but do not always consider the benefits of having a monopoly in certain industries. This prompt will do just that by encouraging students to think about the benefits and drawbacks of having a monopoly. It is geared for students to consider the consumers perspective. The drawbacks of monopolies are relatively straightforward: higher prices, lower quantity, and often times a lower quality product or lower customer service. However, natural monopolies, may help consumers by keeping prices affordable and the resource comparatively easy to access.
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