Between perfect competition and monopoly
Oligopolies and Monopolistic Competition Thinking about different markets that are in-between monopolies and perfect competition
⇐ Use this menu to view and help create subtitles for this video in many different languages.
You'll probably want to hide YouTube's captions if using these subtitles.
- We've spoken a lot about monopolies and we've spoken a lot about perfect competition.
- And we kind of view them as polar opposites. Over here you have exactly one player, here you have many players.
- In a monopoly you get to set the price of the quantity, here you have to be a price taker.
- In a monopoly, there's huge barriers to entry, in perfect competition there's no barriers to entry.
- What I want to think about in this video is are there other situations, or especially are there terms for other situations, that are in between?
- To think about that, I'm going to draw a spectrum. I'm going to do a two dimensional spectrum.
- I could probably think of more variables where there's nuance between these terms, but these are the two big ones.
- So in one dimension, I'm going to think about the number of competitors that there are.
- This is a number of competitors.
- Competitors. Number of competitors.
- Now, obviously a monopoly is one competitor; perfect competition you've got a bunch of competitors.
- So I'll put one right over here and a bunch of competitors.
- If this were zero there wouldn't even be a market to speak of; no one is participating there.
- In this axis, in the vertical axis, I want to think about how differentiated
- the competitors in the market are. How different are their products or their brands?
- Differentiation in the market.
- And this was low differentiation and this is high differentiation.
- So let's think of a bunch of industries and think about where they sit here
- and then I'll introduce you to two new words other than just a monopoly or perfect competition.
- So, let's just say that we live in a world where there's fifty producers of screws
- and all those screws are completely identical.
- And so, if one producer charges even a penny more no one's going to want to go to them
- because they can get the exact same thing from one of the many other producers.
- That would be a case right over here - low differentiation, all the screws are the same and there are a bunch of competitors.
- So, that's about as perfect as a perfect competition can get in the real world.
- So, bunch of identical screw manufacturers.
- I'm not sure if the actual screw market has a bunch of competitors,
- but let's just assume if it did you would be sitting right over here,
- pretty close in the world of perfect competition.
- In the other spectrum you imagine you are a utilities,
- and most places in the U.S. and probably the world, there is only one utility,
- one entity that's managing the power lines.
- A lot of times it's actually run by the government,
- but in most of the U.S. it's a regulated private company.
- And so here you have one player, and you could debate whether
- it's low differentiation or so high differentiation that it's the only player.
- But, let's just stick it right over there, low differentiation.
- This right over here might be a utility.
- That's about as close to a monopoly, or that actually is a monopoly - they are the only player there.
- Mono, mono comes from one. Poly comes from seller. One seller that would be a utility.
- Now there are things that would be in-between.
- So, for example, if you thought about your, say the telephone providers in your area.
- There are more than a few people who can provide phone service, especially with the age of internet telephony,
- now the cable companies are starting to provide phone service and the telephone companies
- are starting to provide internet and cable service.
- So, we could think of that market.
- Let's put this market right over here.
- So, the number of competitors is low, so it's going to be here, and they are somewhat differentiated,
- they might give you a different cable box, or they might offer you slightly
- different levels of bandwidth or whatever else.
- So, they're somewhat differentiated right over here.
- So, I'll call that the cable internet telephone providers right over there.
- Then you can think of markets where there's a bunch of competitors, but they are somewhat differentiated.
- I can think of fine dining.
- So, here there's a bunch of restaurants in any place that sells, you know, nice food
- and they really define themselves by the quality of the food that they produce.
- So, they're highly differentiated. Each restaurant is unique, the chef's have specialties and all the rest.
- But, there's a bunch of them.
- So, right over here I will put fine dining.
- You could also imagine, you know, name brand clothing.
- They're very differentiated, certain designers, certain materials and all those type of things, but there's a bunch of them.
- Name brand clothing. It's not quite perfect competition;
- it's very competitive, there's a bunch of players there, but they're not selling the same product.
- They are very, very differentiated.
- To some degree, you almost feel like even though there's all this competition,
- they have a monopoly on their own product.
- Another one could be, you could imagine something like, high-end laptops, or high-end computers,
- or nice computers. Maybe I'll just say computers in general.
- Some people might want to go for an Apple, that's what they have associated with, and some people might want to go for a Sony.
- So, maybe I'll put branded computers up here. But, then you could also have something like the
- unbranded PC market, and that might be something closer to here where you might have these random manufacturers,
- you don't even care, some manufacturer from overseas, you don't even care
- but they are saying that they're using the same processor, the same memory chip,
- they're using all the same things. So, they're much less differentiated.
- So, this might be over here, unbranded, and that tends to happen with the personal computer industry.
- It's usually like, well, they're using the same chip, the same memory, they're all running Windows,
- whatever else. There's not a lot of difference between them, so those actually start getting closer to perfect competition.
- So, the whole reason that I've introduced these ideas to you is that there are names for these things
- that aren't quite perfect competition, because they're highly differentiated,
- and there are names for these things that aren't quite monopolies because they have a few providers.
- These right over here, so, we can put other things around here, so I'll circle this general area.
- We would call these oligopolies. Oli, this comes from this part right over here,
- and I'm not an expert in Greek, but this comes from few.
- And, obviously, the poly, once again, just as with monopolies, comes from sellers.
- So, this means few sellers. In oligopolies, and we're going to study this in much more detail,
- they're not quite monopolies, they can't set the price and the quantity, and they can,
- depending on the oligopoly, depending on the market, they might start acting more like a monopoly.
- The players could coordinate with each other, to their mutual benefit,
- or they might become fiercely competitve. Even if there's only a few providers.
- So, oligopolies can kind of, in their personality characteristics,
- can either look more like monopolies, or they can look like very competitive industries.
- And these things up here, where these are quite competitive industries,
- they are highly differentiated. To some degree you could say that,
- for example, in branded computers Apple has a monopoly on selling Apple computers.
- It doesn't have a monopoly on computers. Obviously there are many, many people that can
- provide computers, but they have a brand; if someone wants an Apple computer,
- you have to go to Apple. It's a self-evident statement. But, they're highly differentiated,
- highly branded, so they have a monopoly on their product,
- but there are many, many other competitors who are out there who won't let them just set price
- because they sell products that serve the same purpose,
- but they're differentiated in some way.
- So, these players up over here, we would call these, or these markets,
- these are monopolistic competition.
- And when you first hear that it sounds more because the first word you hear in monopolistic.
- But, this is more, at least in my mind, closer to perfect competition
- than it is to a monopoly. This is, at least the way I view it in my mind,
- monopoly is completely, completely uncompetitive.
- While this is still highly competitive; it's still not quite as highly competitive as perfect competition,
- but it's close. You have a monopoly in just your product,
- but there are are not too similar products on the market who's prices affect your price.
- There are other alternatives, I should say, in the market that will affect people's demand
- for your product. And the best give away between a monopolistic competitor
- and perfect competition is that there is some differentiation between the products
Be specific, and indicate a time in the video:
At 5:31, how is the moon large enough to block the sun? Isn't the sun way larger?
|
Have something that's not a question about this content? |
This discussion area is not meant for answering homework questions.
Discuss the site
For general discussions about Khan Academy, visit our Reddit discussion page.
Flag inappropriate posts
Here are posts to avoid making. If you do encounter them, flag them for attention from our Guardians.
abuse
- disrespectful or offensive
- an advertisement
not helpful
- low quality
- not about the video topic
- soliciting votes or seeking badges
- a homework question
- a duplicate answer
- repeatedly making the same post
wrong category
- a tip or feedback in Questions
- a question in Tips & Feedback
- an answer that should be its own question
about the site
Share a tip
Suggest a fix
Have something that's not a tip or feedback about this content?
This discussion area is not meant for answering homework questions.