Intro to Microeconomics Chapter 10: Monopolistic Competition and oligopoly

A market structure with many firms selling products that are substitutes but different enough that each firm's demand curve slopes downward; firm entry is relatively easy

-Firms are called price makers
-Barriers to entry are low
-But there are enough sellers that they behave competitively
-They can act independently or interdependently

Products differentiate themselves in 4 different ways

1) Physical Differences
- packaging, colors, weight
2) Location
-spatial differentiation
-price/convenience stores
3) Services
-free delivery, guarantees, toll free numbers
4) Product Image
- endorsements, all natural, Starbucks, image/brand loyalty, environmentally friendly

The difference between a firm's profit-maximizing quantity and the quantity that minimizes average cost [In monopolistic competition, firms fall short of producing the quantity that would achieve the lowest average cost as opposed to perfect competition]

A market structure characterized by a few firms whose behavior is interdependent

An oligopoly that sells a commodity or a product that does not differ across suppliers, such as

Agreement among firms to increase economic profit by:
- Dividing the market and fixing price

Group of firms that agree to coordinate their production and pricing decisions
- to reap monopoly profit
Illegal in U.S

The organization of Petroleum in exporting countries

Informal, tacit collusion

Sets the price for the industry
Initiate price changes
Followed by the other firms
- Avoid price competition