Copyright 2002 TecEd

Of course in the real world most markets are somewhere in-between the two extremes of Perfect Competition and Monopoly:

• Monopolistic Competition
  This is virtually the same as perfect competition except for one issue. In monopolistic competition the products produced by each firm are different - we do have product differentiation. An example of monopolistic competition would be the fashion market where many businesses compete, it’s easy to set up in business, it’s not difficult to find out how to make clothing but where every businesses product is slightly different in style, materials etc.
• Oligopoly
  This is closer to monopoly but a small number of firms, for example four or five, exist in the market. In an oligopolistic market (a difficult word to say!), it is expensive to set up in business, it might not be easy to find out about other businesses in the market and the products can be highly differentiated. However it’s usually the difficulty of setting up in business that creates oligopolistic markets. An example of an oligopolistic market would be petrol retailing with very few independent sellers left in the market these days. In this example the product is almost identical, but it’s the cost of running the business that’s crucial. Profit margins are very low and you have to operate on a very large scale to survive.

To make matters more complicated, you could really say that most markets combine elements of oligopoly and monopolistic competition. It’s a little like football in the UK. Many football teams exist in the league and the premiership, but you clearly have about five or six major teams who dominate the market.

Task

1. Identify two markets for each of the four degrees of competition (Monopoly etc) other than the examples provided above. (E2)
2. Describe the degree of competition in one of these markets. (E2)