Market Competition: Monopoly, Oligopoly, and Monopolistic Competition

Vocabulary practice flashcards covering market structures, characteristics, sources of monopoly power, oligopoly behaviors, and monopolistic competition.

Monopoly

A market structure where a single firm is the sole producer or seller of a product that has no close substitutes.

Single seller

A monopoly characteristic where one firm produces all output for a good or service, serving the entire market alone.

Price maker

A characteristic of a monopolist that grants it the power to charge any price for its product or service.

Profit maximizer

A characteristic where a monopoly maximizes profits by increasing the price of its products.

High barriers to entry and exit

Obstacles such as government regulations, contracts, and high production costs that prevent new firms from entering a monopoly market.

Price discrimination

The practice of selling the same product to different buyers at different prices.

Economies of scale

A source of monopoly power where a firm, after existing in the market for a considerable period, generates output at a larger scale with fewer input costs.

Capital requirements

Production processes requiring large investments and high setup costs, limiting the number of companies in industries like international airlines and chemicals.

Technological superiority

A condition where a monopoly is better able to acquire, integrate, and use the best technology, while entrants lack expertise or cannot afford production costs.

No substitute goods

A condition creating relatively inelastic demand, enabling a monopoly to extract positive profits and charge prices higher than the marginal cost.

Legal barriers

Exclusive legal protections, such as patents, copyrights, and property rights, that grant exclusive control over selling goods or sourcing essential materials.

Oligopoly

A market structure controlled by two or more (a few) firms.

Price setting in an oligopoly

The mechanism where firms set high prices either mutually or by following a leader firm whose price increases are matched by all others.

Slow innovation (Oligopoly)

An industry condition resulting from firms having equal market share and choosing to cooperate and live in harmony rather than competing.

Causes of oligopoly

Factors causing market concentration, including high cost of entry, required legal privileges (e.g., spectrum licenses), and requiring a high number of customers.

Monopolistic competition

A market structure where many companies produce similar but differentiated products, operating independently without any firm holding a monopoly.

Product differentiation

The practice where competing firms distinguish similar products using distinct marketing strategies, brand names, and differing quality levels.

Pricing in monopolistic competition

The ability of firms to act as price makers and adjust prices for goods and services without provoking a price war.

Demand elasticity (Monopolistic competition)

A market characteristic where consumer demand is highly elastic and very responsive to changes in price.