1. Pure
Monopoly
Perfect
Competition
Monopolistic
Competition
Oligopoly

2. Concentration Ratios
One measure the degree of competition in an industry is its concentration ratio.
An industry’s concentration ration is the percentage market share of the top firms in the industry.
The concentration ratio of the “n” top firms is:
Total Sales of the top “n” Firms
CRn =
100
Total Industry’s Sales

3. An Example
Four-firm and eight-firm concentration ratios are more commonly used, concentration ratios can be calculated for any number of top firms. 20 and 50-firm concentration ratios are particularly useful when comparing industries with larger number firms.
In the US there are 48 manufacturers of breakfast cereal with the total sales of $9099 million. The top 4 companies sales amount to $7543 million. The 4-firm concentration ratio for this industry is (7543/9099).100= 82.9
(See Table 11.5, page 447< in the book.)

4. Monopolistic Competition
Many firms producing producing differentiated products
Each firm would face a downward-sloping demand curve
The 15-minute fame
To maximize profit the firm set its estimated MR equal to its MC
The firm may enjoy a short-run profit
In the long run due to the emergence of substitutes the demand starts to shrink

5. A Monopolistically competitive Firm’s Market Share$ P1 P2
MS` MS Q
Q1 Q Q3

6. $
MS1
A Monopolistically Competitive
Firm’s Demand Curve
MS2
MS3
MS4
MS5 a p1 c p2 b d p3 e p4 f p5 d Q
q1 Qo q q q q4
MR`

7. $ MS
SMC a P b d Q
Q1 Q2 MR

8. $
Short-Run Equilibrium: A Monopolistically
Competitive Firm MS
SMC
SATC Pe a b c d` Q Qe
MR`

9. Long-Run Equilibrium: A Monopolistically Competitive Firm
LMC $
LAC
P=LAC Pe d Q o qe MR

10. Oligopolies
A market with a few firms each large enough to have an effect on the price
Interdependence among firms
Each firm would try to guess its competitor’s reaction to its pricing strategy
Relative price stability
Different Oligopoly models
The Kinked Demand Curve Model
The Game Theory

11. The Kinked Demand Curve$ d`
The Kinked Demand Curve a Pe
MC4
MC3
MC2 d
MC1 D Q Qe MR

12. $
A Duopoly with a Superior Firm Pb
MCb Pa
MCa D` D Q o
Qb Qa QT
MR`

13. $
Sf , MCf
MCL a Pb e Pe DL h Pf Dm g
MRL QL
QeL
Qes
Qem Qm
Market Demand and Small Firms’ Supply
Leader