Perfect Competition

Barriers to Entry

None (FOPs are

perfectly mobile and
there are no/minimal
start-up costs)

Monopolistic
Competition
Low BTE
Low start-up costs,
technology easily
replaced

Number of
Producers
Nature of
Product

Numerous small firms

Numerous small firms

Homogenous

Homogenous/Differentia Unique (no substitutes)

ted

Knowledge of
Product/Industry
Independent/Int
er-dependent
Market Power

Perfect

Differentiated (in terms

of design, quality,
branding, etc)
Imperfect

Independent

Mutual interdependence -

None (Insignificant
market share)
Normal Profits

Low (Small/low market

share)
Normal Profits

Huge (Large market

share)
Supernormal profits

Profitability in
LR
Firms Revenue
Curves
Industrys
Demand curve
Firms business
strategies

Oligopoly
High BTE
Natural BTE: high fixed
costs or start-up costs
Artificial BTE: achieved
by creating real or
perceived differences
Few + Dominant Firms

Imperfect

Monopoly
Substantial BTE
Natural BTE: high fixed
costs or start-up costs
Artificial BTE: achieved
by creating real or
perceived differences
Sole dominant firm

Imperfect

AR=MR

AR>MR

Absolute (Total market

share)
Supernormal profits (at
least normal)
AR>MR

Summation

Summation

Firms demand curve

Mainly non-price
(product development or
product promotion)
- Hawker stalls
- Hairdressers
- Restaurants

Mainly non-price

Mainly price (Price setter)

- Utilities
- Mail services

No. (But not as bad as

monopoly, due to more
elastic DD curve)

No

Price-taker

Examples

-Forex
- Primary products
(agriculture)

Allocative
Efficiency
(P=MC)

Yes

Telecommunications
Airlines
Supermarkets
Banks
OPEC

No

Dynamic
Efficiency
(Investing
supernormal
profits in R&D)

No Only normal
profits earned in long
run.

Not much, since

supernormal profits
earned in short run from
innovation will not be
sustained anyway due to
freedom of entry for new
firms.
Evaluation: Small-scale
innovation will still occur
to differentiate products,
since rivals may not
copy all innovations due
to imperfect information.

Yes To gain a
competitive edge, even
if only temporary.

Yes.
Evaluation:May lack
incentive to innovate due
to lack of competitive
pressures (X-inefficiency)
No guarantee that R&D
will produce results

X-Efficiency
(Minimising cost
due to
competitive
pressures)

Yes

Yes

Yes

No, since lack of

competitive pressures
may result in
complacency.

Productive
(Firm produces
on LRAC)
Minimum
Efficient Scale
(When
economies of
scale have been
fully exploited,
i.e. min. pt. of
LRAC)

Yes to all!
(However, X-inefficiency will result in productive inefficiency.)
Will always produce at
MES.

Excess Capacity
Theorem: Each firm
serves too small a
market to be able to fully
exploit economies of
scale, so resources can
be used more efficiently
if output was raised to
MES.

Can possibly produce at MES if the minimum point

of LRAC happens to coincide with the profitmaximising output, i.e. it intersects the point where
MC=MR.
(This can happen because monopolies can maintain
supernormal profits in the long run and so LRAC can
lie anywhere, while monop. comp. firms can only
earn normal profits.)

Remarks

- Wider consumer choice

- Creates jobs in
advertising sector

Equilibrium price can be lower and output higher

than if there were many firms, if substantial
economies of scale are reaped such that MC falls
significantly.