Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed.
PART
5 Firm Behavior and the Organization of Industry
Chapter 16 of 36 Monopolistic
Competition
Section 2 of 15
…
In a book store you find mystery books,
history books, and many others.
When you choose a book and buy it, are
you participating in a competitive market?
The market for books seems competitive,
there are many authors and publishers.
Buyers in this market have thousands of
competing books to choose from.
Anyone can enter the industry by
writing and publishing a book, limiting sales and profits for each.
…
But in a way the market for books is
monopolistic.
Each book is unique, so publishers
· have some choice of what price to
charge
· are price makers rather than price takers
The price of books greatly exceeds marginal
cost.
The price of a typical hardcover book is
about $25.
The cost of printing one additional
copy of the book is less than $5.
The market for books
· is neither fully competitive nor
monopoly
· is best described by the model of monopolistic competition
…
Monopolistic competition industries are
monopolistic in some ways and competitive in other ways.
The monopolistic competition model describes the market for most goods
and services.
In almost all markets products are differentiated
and not uniform.
Uniform products such as commodities are the exception and are considered to be in fully competitive markets.
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