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101 Concepts for the Level I Exam

Concept 20: Perfect Competition, Monopolistic Competition, Oligopoly & Monopoly


            Perfect competition Monopolistic competition Oligopoly Monopoly
Number of firms Many firms Many firms Few firms Single firm
Barriers to entry Very low Low High Very high
Nature of substitute products Very close substitutes Substitutes but differentiated Very close substitutes or differentiated No good substitutes
Nature of competition Price only Price, marketing & features Price, marketing & features Advertising
Pricing power None Some Some to significant Significant
Demand curve for the firm Perfectly elastic (Horizontal) Downward sloping, yet elastic Downward sloping Downward Sloping
Example Rice market Soap Aircraft manufacturers Utility companies
Key points Overall market supply and demand, determine the prices. Branding creates differentiation in otherwise very similar products. Firms are interdependent, i.e. they must consider actions and reactions of each other. May be regulated by the government.