ECON 1123 1st Edition Lecture 21 Outline of Last Lecture I Antitrust Policy II Measuring the Extent of monopoly power III Contestable Market IV Monopolistic Competition Outline of Current Lecture I Characteristics of Monopolistic Competition II Brands III Persuasive Advertising IV Comparison between monopolistic competitive firms and perfectly competitive firms Current Lecture I Characteristics of Monopolistic Competition 1 Many small firms which are largely independent of competitors price changes 2 Entry or Exit is relatively low in cost 3 Product differentiation achieved by better location branded products II Brands Brands effectively are promises of performance Financial times estimated value of brands 1 google 90 Billion just for the name 2 General Electric 70 Billion 8 out of top 10 brands in the world are American Example of the power of brands People will pay more for the exact same car if it is a Toyota Brands convey market power some control over price Brands brand themselves by using clever packing and advertising III Persuasive Advertising Potential benefits These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute increased information about price and quality reduces search costs to reduce costs by increasing sales economies of scale Persuasive advertising Zero Sum one firm gains customers while the other firm loses customers little information potential for the sale of inferior quality products IV Comparison between monopolistic competitive firms and perfectly competitive firms The demand schedule for a perfectly competitive firm will be perfectly elastic The demand schedule for a monopolistic competitive firm will be less than perfectly elastic but still highly elastic The monopolist will take a different price determined by the market depending on the level of output that they produce They will charge the highest price possible for that output The maximum price people are willing to pay for any level of output is shown by the demand schedule dmc Pmc profit max loss min charged by the monop comp firm This sequence of output and pricing decisions is the same as that followed by pure monopolist
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