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Imperfect market theory manly pertains to imperfect market forms, namely, monopoly, monophony, and oligopoly.
Characteristics of imperfect market forms
The number of sellers is few
The product is not homogenous
Same price do not exist in the market.
Types of imperfect market
Monopoly- A situation in which a single owner owns all or mainly all of the market for a particular kind of product or service. There exist a barrier to exit and a barrier to entry in this kind of a market. (for example, vast economies of scale, barriers to entry, or governmental regulation). In such an industry structure, the producer will often produce a volume that is less than the amount which would maximize social welfare.
Characteristics of monopoly market· Single Seller· Price Discrimination
· Homogenous Product
· No entry of New Seller
Determination of Monopoly Equilibrium- Firm will have excess profits if P > ATC
- If no new entry of other firms selling substitute goods excess profit can remain
- Idea of "full equilibrium" where other firms come in and all firms are where MC =MR and
P = ATC but each firm still facing a downward sloping demand curve
Monopolistic Competition: A market framework in which a number of or so many sellers each make alike, but to some extent distinguish goods. Each manufacturer can put its MRP and capacity devoid of disturbing the market place as a whole.
Characteristics of Monopolistic Competition· Many Sellers· Free entry in the market
· Prize change to capacity of seller
· Differentiate Product.
Determination of equilibrium- Equilibrium for the a single firm is where MR (derivated from the dd curve) = MC
- For all this to remain steady with equilibrium for the cluster the firm should also be on its contribute of the market demand curve
- In the time-consuming run all firms must just be building ordinary profits coz of open admission provision
- In equilibrium of Long run, it will be to the case of minimum LRACT
Oligopoly-A market conquered by a tiny amount of contestants who are capable to jointly apply control over market prices and supply.
Characteristics of Oligopoly· Few sellers (may be three, four etc).· Homogenous product
· Without charge admission in market
Problems with Oligopoly• Issue of interdependence• Cournot mock-up of duopoly
• Stackelberg and cost leadership mock-ups
• Cournot-Nash equilibrium
• One shot and repeated games
• Evolutionary game theory and evolutionary stable strategies.
• More modern game theory approaches- oligopoly as a prisoners' dilemma game
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