A presentation on

Monopolistic Competition and Oligopoly

Institute of Management Studies

Banaras Hindu University

Presented by-
Meghna Jaiswal (22)
Rajeshwari Gautam(28)
M.B.A
First Year (2019-2020)
WHAT IS MONOPOLISTIC COMPETITION?

Monopolistic Competition refers to a market structure in which a large

number of sellers sell differentiated products, which are close substitutes for
one another.
Monopolistic Competition combines the basic elements of both perfect
competition and monopoly.
• Element of monopoly arises from the fact that each firm has the absolute
right to produce and sell a branded or patented product. Example- Soap
brands like Lux, Liril etc.
• Element of competition arises from the fact that each generic branded
product has several close substitutes and firms selling branded products
of the same generic category have to compete for market share. Example-
Toothpaste brands like Colgate, Pepsodent etc.
EXAMPLES OF MONOPOLISTIC COMPETITION

FAST FOOD COMPANIES SALONS

SHOES BRANDS RESTAURANTS

 CHARACTERISTICS

Product differentiation

Large number of sellers

Free entry and Free exit

Selling Costs

Downward sloping demand curve

PRICE AND OUTPUT DECISIONS IN THE
SHORT RUN
• In the short-run, a
monopolistically competitive firm
will produce up to the point
where MR = MC.

• This firm is earning positive

profits in the short-run.

• Profits are not guaranteed. A firm

with a similar cost structure is
shown facing a weaker demand
and suffering short-run losses.
PRICE AND OUTPUT DECISIONS IN THE
LONG RUN

• As new firms enter a monopolistically

AC competitive industry, the demand
curves of existing firms shift to the
left, pushing MR with them.

• In the long run, increasing number of

firms intensifies the price competition
between them and so new firms set
comparatively low prices for their
product. Thus, firms only make
normal profit in the long run.
 OLIGOPOLY

An oligopoly is an industry which is dominated by a few firms which sell

homogeneous or differentiated products.
Oligopoly is, sometimes, also known as ‘competition among the few’ as there are few
sellers in the market and every seller influences and is influenced by the behavior of
other firms.
Car manufacturers
 CHARACTERISTICS
Few firms

Interdependence

Barriers to Entry and Exit

Non-Price Competition

Nature of the Product

Indeterminate Demand Curve

Importance of advertising and selling costs

 KINKED DEMAND CURVE

1. Along the elastic demand curve above point B, if a firm increases price it
will lose many customers and revenue.
2. Along the inelastic demand curve below point B, if a firm decreases price
so will competitors, so it will gain few customers but will lose revenue.
Relationship between the demand curve and the
marginal revenue curve.

1. Because the demand curve is kinked the firms MR curve consists of two
distinct parts.
2. It is constant between D and E.
3. Between these points if MC changes, price will not change.
 Price rigidity/Sticky prices

1. Prices tend not to change when costs change in oligopoly.

2. Firms fear the reaction of their competitors.
3. If a firm increase price & their competitor will not, so they will lose
customers & revenue.
4. If a firms decrease price so will competitors, so they will not gain
customers and lose revenue.
 DIFFERENCES BETWEEN
MONOPOLISTIC AND OLIGOPOLY