chapter 9Imperfect Competition: Monopolistic Competition and Oligopoly

We have seen that in perfectly competitive markets, many small price-taking firms earn zero economic profit in the long run, prices to consumers are low, and output is at the socially efficient level. We have also seen that in monopoly markets, one large firm maintains positive economic profit in the long run, prices are high, and output is reduced so that deadweight loss is created. Both of these outcomes are uncommon in the real world because the basic assumptions of these two models are very strict. Markets in the real world operate somewhere in between perfect competition and monopoly, and we investigate these imperfectly competitive markets in this chapter.

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