Chapter 17

Chapter 17 is about oligopolies and their behavior in the market. Oligopolistic firms are interdependent on each other, unlike competitive firms. An oligopolistic market has few sellers that impact each other's profits with their behaviors. It is part of imperfect competition in which firms have competitors but do not face as much competition because they are price takers not price makers. An oligopoly with only two members is called a duopoly, which is the simplest type of oligopoly. When firms in an oligopoly individually choose to produce at maximum profit, they produce at a quantity greater than the level of a monopoly and less than the level produced by competitive. An oligopoly's price is less than the monopoly price but more than the competitive price. The output effect is that selling one more quantity at the price (as above marginal cost) would raise profit. The price effect is that raising production would increase the total quantity sold, which would lower the price of water and its profit on the other products sold. As the number of sellers in an oligopoly increases, it begins to look more like a competitive market. In return, the price begins to reach marginal cost and the quantity would start to reach the socially efficient level. Policymakers use antitrust laws to prevent oligopolies from reducing competition with their behavior. Controversies have arisen over the types of behavior antitrust laws should prohibit. Three examples of controversial business practices are resale price maintenance, predatory pricing, and tying. I thought this chapter was informative in its comparison of oligopolies, competitive, and monopolistic markets. It helped clarify the differences between the different markets.

Chapter 16

Chapter 16 is about monopolistic competitive markets. They are markets that contain elements of competitive markets and some elements of monopolies. A monopolistic competitive market is defined by having many sellers, product differentiation, and free entry. Similar to monopolies, monopolistic competitive markets produce at the quantity where marginal revenue equals marginal costs. It then uses the demand curve to set the price at that quantity. In the long run equilibrium of a monopolistic competitive market, price equals average total cost, like a competitive market. Also, price exceeds marginal cost, as in a monopoly. There are positive and negative externalities from the entry of new firms. The product-variety externality is where an entry of a new firm creates a positive externality on consumers because consumers get some consumer surplus. The business-stealing externality is where the entry of a new firm creates a negative externality on existing firms because a new competitor causes other firms to lose customers and profits. The product differentiation apparent in monopolistic competitive markets leads to the use of brand names and advertising. This leads to critics and defenders of advertising. Like monopolies, monopolistic competitive markets don't produce at the welfare-maximizing level of output. Similar to monopolies, monopolistic competitive markets have price exceeds marginal costs and are not price takers. Like competitive markets, monopolistic competitive markets contain many firms in the market and can have entry in the long run. Monopolistic competitive, monopolies, and perfectly competitive markets all have the goal to maximize profits. I thought this chapter was interesting in its comparison of the different types of markets and how monopolistic competitive markets are hybrids of monopolies and perfectly competitive markets.

Chapter 15

Chapter 15 is about monopolies and their role in the market. They are the sole producers of a product, and are given exclusive rights by the government to produce their good through patents and copyright laws. A natural monopoly is a firm that is the sole producer of a product and supplies the market at a lower cost than multiple firms could. Since a competitive firm is a price taker, their demand curve is a horizontal line. However, since monopolies are sole producers of a product, its demand curve is downward-sloping This is because as the monopoly reduces its quantity of output it sells, the price of its output increases. A monopoly's MR<P. For a competitive firm: P=MR=MC. However, for a monopoly: P>MR=MC. The socially efficient quantity is where the demand curve and marginal-cost curve intersect. However, monopolies produce less than the socially efficient quantity and produce a deadweight loss. A monopoly causes deadweight losses similar to the deadweight losses produced by taxes. The deadweight losses of a monopoly are eliminated only in extreme cases of perfect price discrimination. Monopolists try to raise their profits by charging different prices for the same item based on a buyer's willingness to pay. Policymakers respond to the problems of monopolies by: trying to make the monopolized industries more competitive, regulating the behaviors of monopolies, turning some private monopolies into public enterprises, or by doing nothing at all. Overall, I thought this chapter was dense in information. I thought that Table 2 on page 338 was very helpful in summarizing the similarities and differences between monopolies and competitive firms.