ECO204Y5 Lecture Notes - Lecture 36: Nash Equilibrium, Laundry Detergent, Monopolistic Competition

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Where does market power come from: market power comes from perceived quality through branding, brand loyalty. Why (cid:862)co(cid:373)petitio(cid:374)(cid:863)? other firms exist in the industry to allow consumers to switch products limits the market power limits p you can set if p is too high, consumers may switch to another brand. What i(cid:374)dustry falls u(cid:374)der (cid:862)(cid:373)o(cid:374)opolistic co(cid:373)petitio(cid:374)(cid:863)? : toothpaste, laundry detergent, hh goods. What differe(cid:374)tiates (cid:862)(cid:373)o(cid:374)opolistically co(cid:373)petitive(cid:863) a(cid:374)d oligopolistic i(cid:374)dustries: no barriers to entry/exit with monopolistic competition, barriers to entry with oligopoly (2-8 large firms) Short-run equilibrium: similar to pc industries firms can set p>mc earn sr. Long-run: with sr > 0, entry of other firms occur lr = 0. Monopolistically competitive firms face downward sloping demand: pmc > ppc, qpc > qmc dwl exists. But 2 aspects that make monopolistically competitive industries desirable: product diversity may utility through optio(cid:374)s, minimal degree of market power, temporary.

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