Introduction to Imperfectly Competitive Markets - AP Microeconomics

Variety in products to distinguish them. Firms create unique features to reduce substitutability and gain competitive advantage.

A market with few large firms dominating. Unlike perfect competition, this market has limited competitors with significant market share.

A single seller controls the market. This market structure has no competitors, giving the firm complete pricing power.

Analyzing strategic interactions between firms. This mathematical framework models how firms make decisions considering competitors' responses.

Prices tend to remain stable despite cost changes. Firms avoid price changes due to anticipated competitive responses.

Advertising. This marketing strategy builds brand recognition and customer loyalty.

Monopolistic competition has many firms; monopoly has one. Number of firms is the key distinguishing factor between these market structures.

High fixed costs and economies of scale. One firm can serve the entire market more efficiently than multiple competitors.

Firms coordinate to maximize joint profits. Cooperation allows oligopolists to achieve monopoly-like profits by restricting competition.

Leads to lower prices and profits. Aggressive price competition erodes profit margins for all participating firms.

Increases demand and differentiates products. This non-price competition shifts demand curves and creates market power.

Firms consider rivals’ reactions in their decisions. Each firm's optimal strategy depends on what competitors are expected to do.

Create legal barriers to entry. Intellectual property protection prevents competitors from copying innovations.

Can lead to natural monopolies. Large fixed costs make it efficient for fewer firms to serve the market.

Automobile industry. This industry exemplifies oligopoly with few major manufacturers dominating globally.

Ability to influence price or output levels. This contrasts with perfect competition where firms are price takers.

Leads to brand loyalty and market power. Unique products reduce price competition and allow for premium pricing strategies.

An oligopoly model with a leader-follower dynamic. One firm moves first, then the follower responds optimally to the leader's choice.

Actions by firms to deter new entrants. These include predatory pricing, exclusive deals, or capacity expansion threats.

Interdependence among firms. Firms must consider how their actions will affect and provoke responses from rivals.

Product differentiation. This distinguishes monopolistic competition from perfect competition's homogeneous products.

No barriers to entry or exit. Easy entry/exit ensures firms behave competitively even with few actual competitors.

A table showing payoffs for each player in a game. This tool visualizes strategic interactions and helps predict outcomes in game theory.

Competing through means other than price, such as advertising. Firms differentiate through quality, service, or branding instead of lowering prices.

A firm that cannot influence market prices. Such firms accept market price as given and cannot influence it through their actions.

Firms compete by setting prices. This model assumes firms compete by simultaneously setting prices rather than quantities.

One firm sets the price, others follow. This reduces price competition as followers accept the leader's pricing decisions.

Higher prices and reduced output. Coordinated behavior allows firms to act like a monopoly.

No participant can gain by unilaterally changing their strategy. This represents a stable outcome where all players are satisfied with their choices.