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Competing brands?

Image of bottles of laundry detergent on a store shelf.
The laundry detergent market is one that is characterized neither as perfect competition nor monopoly. (Credit: modification of work by Pixel Drip/Flickr Creative Commons)

The temptation to defy the law

Laundry detergent and bags of ice—products of industries that seem pretty mundane, maybe even boring. Hardly! Both have been the center of clandestine meetings and secret deals worthy of a spy novel. In France, between 1997 and 2004, the top four laundry detergent producers (Proctor&Gamble, Henkel, Unilever, and Colgate-Palmolive) controlled about 90 percent of the French soap market. Officials from the soap firms were meeting secretly, in out-of-the-way, small cafés around Paris. Their goals: Stamp out competition and set prices.

Around the same time, the top five Midwest ice makers (Home City Ice, Lang Ice, Tinley Ice, Sisler’s Dairy, and Products of Ohio) had similar goals in mind when they secretly agreed to divide up the bagged ice market.

If both groups could meet their goals, it would enable each to act as though they were a single firm—in essence, a monopoly—and enjoy monopoly-size profits. The problem? In many parts of the world, including the European Union and the United States, it is illegal for firms to divide up markets and set prices collaboratively.

These two cases provide examples of markets that are characterized neither as perfect competition nor monopoly. Instead, these firms are competing in market structures that lie between the extremes of monopoly and perfect competition. How do they behave? Why do they exist? We will revisit this case later, to find out what happened.

Introduction to monopolistic competition and oligopoly

In this chapter, you will learn about:

  • Monopolistic Competition
  • Oligopoly

Perfect competition and monopoly are at opposite ends of the competition spectrum. A perfectly competitive market has many firms selling identical products, who all act as price takers in the face of the competition. If you recall, price takers are firms that have no market power. They simply have to take the market price as given.

Monopoly arises when a single firm sells a product for which there are no close substitutes. Microsoft, for instance, has been considered a monopoly because of its domination of the operating systems market.

What about the vast majority of real world firms and organizations that fall between these extremes, firms that could be described as imperfectly competitive ? What determines their behavior? They have more influence over the price they charge than perfectly competitive firms, but not as much as a monopoly would. What will they do?

One type of imperfectly competitive market is called monopolistic competition . Monopolistically competitive markets feature a large number of competing firms, but the products that they sell are not identical. Consider, as an example, the Mall of America in Minnesota, the largest shopping mall in the United States. In 2010, the Mall of America had 24 stores that sold women’s “ready-to-wear” clothing (like Ann Taylor and Urban Outfitters), another 50 stores that sold clothing for both men and women (like Banana Republic, J. Crew, and Nordstrom’s), plus 14 more stores that sold women’s specialty clothing (like Motherhood Maternity and Victoria’s Secret). Most of the markets that consumers encounter at the retail level are monopolistically competitive.

The other type of imperfectly competitive market is oligopoly . Oligopolistic markets are those dominated by a small number of firms. Commercial aircraft provides a good example: Boeing and Airbus each produce slightly less than 50% of the large commercial aircraft in the world. Another example is the U.S. soft drink industry, which is dominated by Coca-Cola and Pepsi. Oligopolies are characterized by high barriers to entry with firms choosing output, pricing, and other decisions strategically based on the decisions of the other firms in the market. In this chapter, we first explore how monopolistically competitive firms will choose their profit-maximizing level of output. We will then discuss oligopolistic firms, which face two conflicting temptations: to collaborate as if they were a single monopoly, or to individually compete to gain profits by expanding output levels and cutting prices. Oligopolistic markets and firms can also take on elements of monopoly and of perfect competition.

Questions & Answers

what is the meaning of function in economics
Effah Reply
Pls, I need more explanation on price Elasticity of Supply
Isaac Reply
Is the degree to the degree of responsiveness of a change in quantity supplied of goods to a change in price
Afran
Discuss the short-term and long-term balance positions of the firm in the monopoly market?
Rabindranath Reply
hey
Soumya
hi
Mitiku
how are you?
Mitiku
can you tell how can i economics honurs(BSC) in reputed college?
Soumya
through hard study and performing well than expected from you
Mitiku
what should i prepare for it?
Soumya
prepare first, in psychologically as well as potentially to sacrifice what's expected from you, when I say this I mean that you have to be ready, for every thing and to accept failure as a good and you need to change them to potential for achievement of ur goals
Mitiku
parna kya hai behencho?
Soumya
Hallo
Rabindranath
Hello, dear what's up?
Mitiku
cool
Momoh
good morning
Isaac
pls, is anyone here from Ghana?
Isaac
Hw s every one please
Afran
Ys please I'm in Ghana
Afran
what is firms
Anteyi Reply
A firm is a business entity which engages in the production of goods and aimed at making profit.
Avuwada
What is autarky in Economics.
Avuwada
what is choice
Tia Reply
So how is the perfect competition different from others
Rev Reply
what is choice
Tia
please what type of commodity is 1.Beaf 2.Suagr 3.Bread
Alfred Reply
1
Naziru
what is the difference between short run and long run?
Ukpen Reply
It just depends on how far you would like to run!!!🤣🤣🤣
Anna
meaning? You guys need not to be playing here; if you don't know a question, leave it for he that knows.
Ukpen
pls is question from which subject or which course
Ada
Is this not economics?
Ukpen
This place is meant to be for serious educational matters n not playing ground so pls let's make it a serious place.
Docky
Is there an economics expert here?
Docky
Okay and I was being serous
Anna
The short run is a period of time in which the quantity of at least one inputs is fixed...
Anna
that is the answer that I found online and in my text book
Anna
Elacisity
salihu
Meaning of economics
Suraj Reply
It will creates rooms for an effective demands.
Chinedum Reply
different between production and supply
babsnof
Hii
Suraj
hlo
eshita
What is the economic?
Suraj
Economics is a science which study human behavior as a relationship between ends and scarce means which has an alternative use.
Mr
what is supply
babsnof
what is different between demand and supply
Debless Reply
Demand refers to the quantity of products that consumers are willing to purchase at various prices per time while Supply has to do with the quantity of products suppliers are willing to supply at various prices per time. find the difference in between
Saye
Please what are the effects of rationing Effect of black market Effects of hoarding
Atty Reply
monoply is amarket structure charecrized by asingle seller and produce a unique product in the market
Cali Reply
yes
Niraj
I want to know wen does the demand curve shift to the right
Nana
demand curve shifts to the right when there's an increase in price of a substitute or increase in income
kin
ask me anything in economics, I promise to try and do justice to the question, you can send me an email or message, I will answer
kin
what are the factor that change the curve right
Nana
explain the law of supply in simple .....
freshwater
the Law of supply: states that all factor being equal, when the price of a particular goods increase the supply will also increase, as it decreases the supply will also decrease
kin
@Nana the factor that changes or shift the d demand curve to the right is 1) the increase in price of a substitute good or commodity 2) increase in income
kin
you can send your questions I am Comr. Kin chukwuebuka
kin
different between bill of exchange n treasure bill
Nana
yes
Ada
so would you tell me what means an apportunity cost plz?
Cali
what is true cost
Akiti
your question isn't correct naadi
Anthonia
define an apportunity cost?
Cali
orukpe ,is my question whats wrong or u dont know anything?
Cali
In a simple term, it is an Alternative foregone.
Sule
opportunity cost is the next best value of a scale of preference
Akiti
Both of you are not correct.
Nelly
opportunity cost: is a forgone alternative
kin
Monopoly is where is one producer produces a given product with no close substitute
James
what is income effect?
Qwecou Reply
if you borrow $5000 to buy a car at 12 percent compounded monthly to be repaid over the next 4 year what is monthly payment
Nitish Reply

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Source:  OpenStax, Principles of economics. OpenStax CNX. Sep 19, 2014 Download for free at http://legacy.cnx.org/content/col11613/1.11
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