The analysis of monopolies, oligopolies and perfect competition show us that neither is real. Monopolies and oligopolies (when collusion exists) are illegal and considered as really harmful for the economy and consumer’s welfare. On the other hand, if perfect competition was real, firms would not make any profits, and therefore prices will be lower (yes, let’s face it: it does not take around 9 dollars to cook and serve a Big Mac menu). That’s where monopolistic competition comes in.
Monopolistic competition basically covers all the flaws in monopoly and perfect competition models. Edward Chamberlin and Joan Robinson can be considered as parents to this subject.
In this LP we’ll learn about:
Monopolistic competition, a quick definition;
Chamberlin’s model, which represent the economist’s view;
Characteristics demand, a theory by Kelvin Lancaster.
Product differentiation, or how to sell something different;
Linear city model, by economist Harold Hotelling;
Circular city model, by Steven C. Salop;
Shaked-Sutton model, which illustrate vertical differentiation.