ECO100Y1 Lecture Notes - Lecture 10: Monopolistic Competition, Normal-Form Game, Perfect Competition
Document Summary
10 new pizza shops open (no barriers to entry) Each of initial shops now has 1/30th of market. Demand curves of initial shops have shifted leftward. Dominant strategy: advertise on tv, earn million each [earning million each is n. e. ] Ban on advertising: do not advertise on tv, earn million each. Whenever a new firm considers entering the market with a new product, it takes into account only the profit it would make. Monopolistically competitive markets do not have all the desirable welfare properties of perfectly competitive markets. That is, the invisible hand does not ensure that total surplus is maximized under monopolistic competition. From the standpoint of the economic theorist, the allocation of resources in monopolistically competitive markets is not perfect. Yet, from the standpoint of a practical policymaker, there may be little that can be done to improve it.
