Unit 4: Imperfect Competition

Types of Imperfect Competition

• Monopoly

  • Bilateral Monopoly - when there is only one buyer and one seller in the market

    • Monopsony buys from a Monopoly

• Oligopoly

  • An industry where there is a few firms with great market power

  • Market Power - the ability for a firm to influence price

  • Game Theory - considers strategic decisions individuals make in a game in anticipation of their rivals’ actions

    • Ex: Prisoner’s dilemma

• Monopolistic Competition

Price Discrimination

• Price Discrimination - when a seller sells the same good at different prices depending on the buyer

• Perfect Price Discrimination - Seller charges the buyer the most they are willing to pay

  • ZERO consumer surplus