Forms of Imperfect Competition

Oligopoly

The term "oligopoly" comes from Greek roots meaning "few sellers," and that is the way that oligopoly differs both from P-competition and monopoly -- there is more than one seller, but not "very many." Of course, this is a vague conception -- the vagueness is is unavoidable in the use of the relative term "few" -- and economists have debated on the exact boundaries between "few" and "many. For the small number of sellers to be stable, there presumably must be some "barriers to entry" of new competitors.

Monopolistic Competition

In monopolistic competition the products sold by the different firms in the industry group are not homogenous but differentiated. Thus, each firm has a "monopoly" of its own product. But it is not a true monopoly, such as we considered in the last chapter, because the differentiated products are "close substitutes." Once again, we have a certain vagueness here: how close is a "close substitute?" But once again, the vagueness is in the facts, not in the discussion: the products of real firms may be more or less close substitutes in different cases. For monopolistic competition, however, entry is free.

All of this vagueness is a bother, but the thing to keep in mind is that these are broad umbrella terms, each of which includes a range of possibilities, and that may overlap to some extent. For example, some oligopolies sell differentiated products. Rather than try to discuss these types separately, we will consider some of the characteristics that may be observed in imperfectly competitive markets in general, and that be more or less important in different cases.