Monopolistic Competition VS Oligopoly

Tammy Sim
Flashcards by Tammy Sim, updated more than 1 year ago
Tammy Sim
Created by Tammy Sim over 5 years ago


A Levels Economics Flashcards on Monopolistic Competition VS Oligopoly, created by Tammy Sim on 24/08/2015.

Resource summary

Question Answer
What is the degree of BTE for Monopolistic Competition? Low BTEs - New firms have the freedom to enter/leave industry
What is the degree of BTE for Oligopoly? Significant BTEs 1. Natural -Substantial internal EOS - Control of raw materials - Imperfect info 2. Financial 3. Artificially created - Legal - Aggressive tactics - Trade
How many number of firms are there in a Monopolistic Competition? Large number of firms - Each firm only producing an insignificant part of the total market - Independent behaviour
How many number of firms are there in an Oligopoly? A few large firms - Controls significant portion of total output - High concentration ratio - Strong price-setting abilities
What type of product differentiation is in a Monopolistic Competition? Close but identical substitutes - Price elastic - Differentiated (real & perceived) - Price-setter
What type of product differentiation is in an Oligopoly? May be 1. Homogenous; have higher tendency to exhibit price rigidity to collude 2. Differentiated; find themselves competing aggressively using non-price strategies
What is the degree of knowledge in a Monopolistic Competition? Imperfect knowledge - b/w firms; not fully aware of consumers' taste & preference - b/w consumers; not fully aware of nature of products sold by diff. firms
What is the degree of knowledge in an Oligopoly? Imperfect knowledge - Not enough info about other firms' production techniques, marketing or pricing strategies - Consumers also not perfectly informed about diff. prices charged - Acts as a BTE too
What is the allocative efficiency in a Monopolistic Competition? Allocative inefficient (not severe) - P>MC - Since a good's price in MC always exceeds MC, market can never be allocative efficient
What is the allocative efficiency in an Oligopoly? Allocative inefficient (more severe) - Set price above MC
What is the dynamic efficiency in a Monopolistic Competition? Partially dynamic efficient - Some innovation & product variety - Since key feature of this market is product differentiation, therefore more innovation & product variety
What is the dynamic efficiency in an Oligopoly? Very dynamic efficient - Can use part of their supernormal profits to invest in research & development, resulting in innovation
Is there equity in a Monopolistic Competition? Equitable due to long-run normal profit - No sustained redistribution of income b/w firms and consumers
Is there equity in an Oligopoly? Inequity due to long-run supernormal profit - Profits earned due to firms ^ prices at expense of consumers -A large share of wealth redistributed from consumers to producers
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