MGMT 4A Lecture Notes - Lecture 18: Monopolistic Competition, Perfect Competition, Economic Equilibrium
Document Summary
Lesson 6: monopoly, monopolistic competition, and the strategy-marketing nexus. Collusion difficult numerous sellers so it makes it harder to collude. Even if they can successfully collude, other industries can enter the market easily so there is no point in colluding. Non-collusive oligopoly = numerous sellers and easy entry. Key point: conduct very different in presence or collusion. In the short run, monopolistic competitors may very well earn monopoly profits under certain circumstances. In long run, economic profits in the industry will be driven to zero just as in perfect competition. Main difference between monopolistic and perfect competition. Under monopolistic competition, price will be above marginal cost and thus lead to a deadweight efficiency loss. Entry will cease when each seller has been forced into a long-run, non-profit tangency. In the long run, equilibrium price will remain above marginal cost. Leads to an under allocation of resources because the product price actually exceeds mc.
