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ECON 208 CH11 Imperfect Competition And Strategic Behaviour.pdf

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McGill University
Economics (Arts)
ECON 208
Michel Lapointe

ECON 208 Introduction To Microeconomics Introduction To Microeconomics Chapter 11 Imperfect Competition And Strategic Behaviour Chapter 11 Imperfect Competition And Strategic Behaviour Canadian Economy StructureIndustries with many small firms o Does not follow perfect competition o In retail trade and in services most firms have influence in prices and we observeDifferentiated productsGood deal of money spent of advertisingUnique location gives market powerIndustries with a few large firms o Contain several firms but are not competitive marketsConcentration Ratio the fraction of total market sales or some other measure of market activity controlled by a specific number of the industrys largest firmsDefining a firm with reasonable accuracy is difficultSometimes the market is much smaller than the entire countryOther times it is much larger than the entire country due to globalizationWhat is imperfect competitionThe theory of monopolistic competitionLarge number of small firms with some market powerThe theory of oligopolySmall number of large firms with considerable market powerFirms choose their productsDifferentiated Product a group of products that are similar enough to be called the same product but different enough that they can have different pricesFirms choose their pricesTypically firms are price setters Downward sloping demand curveNonprice competitionImperfectly competitive firms typically engage in behaviour that is absent in either a monopoly or in perfect competitionAdvertisingCompeting standards of quality and product guaranteesCreating entry barriers to prevent erosion of pure profitsDifference between monopolistic competition and oligopoly is strategic behaviourMonopolistic Competition AssumptionsEach firm produces one variety of the differentiated product
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