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 and 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 their terms for other
situations that are in between? And 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 there are. So this is the number
of competitors. And 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 was 0, then
there wouldn't even be a market to speak of. No one is doing 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 is 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 50 producers of
screws and all of those screws are completely identical. And so if one producers
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 other of
the many producers. So that would be a case right
over here, low differentiation. All the screws are the same and
there's a bunch of competitors. So that's about as perfect
as 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 then you
would be sitting right over here, pretty close in the
world of perfect competition. In the other spectrum, you
imagine your utilities. In most places in, especially
the US, but probably the world, there's only one utility. There's only one entity that's
managing the power lines. A lot of times,
because of that, it's actually run by the government. But in most of the US 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. And 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 are in between. So for example, if you
thought about your, let's say that the telephone
providers in your area-- there normally are 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. So 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 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 could think
of markets where there is a bunch of competitors. There's a bunch of
competitors, but they are somewhat differentiated. And I could think
of fine dining. So let's say-- so here,
there's a bunch of restaurants in any place that sells nice
food, that they really define themselves by the quality of
the food that they produce. So they're highly
differentiated. Each restaurant is unique. The chefs 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
name brand clothing. There they're very
differentiated, certain designers,
certain materials, all of those type of things. But there's a bunch of them. So 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. Or maybe I'll just say,
computers in general. Some people might want
to go for an Apple. That's what they've
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're saying, they're
using the same processor, the same memory chip. They're saying, using
all the same thing. So they're much
less differentiated. So this might be right
over here unbranded. And that tends to happen with
the personal computer industry. They're just like, well, they're
using the same Intel chip. They're using 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 this 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
could put other things around here, so I'll circle
this general area. We would call these oligopolies. And 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. And 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 kind of--
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
competitive, even if there's only a few providers. So oligopolies can kind
of, in their personality characteristics, they can
either look more like monopolies or they can look like kind of
very competitive industries. And these things up
here, where these are quite competitive
industries, but they are highly
differentiated-- to some degree, you can
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's
many, many people who could provide computers. But they have a brand. If someone wants
an Apple Computer, you have to go to Apple. It's almost-- it's a
self-evident statement. But it's highly
differentiated, highly branded. And so they have a
monopoly on their product but there are many, many,
many, other competitors who are out there that
won't let them just set price because they
can offer products that serve the same
purpose but they're differentiated in some way. And 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-- because the first word you here is monopolistic--
but this is more, at least in my mind, closer
to perfect competition than it is to a monopoly. Because this is a-- or at least
the way I view it in my mind, monopoly is 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 other not too
different similar products-- there are other products on
the market whose prices affect your price. Or there are other
alternatives, I should say, in the market that will
affect people's demand for your product. And the best giveaway between
a monopolistic competitor and a perfect
competition is that there is some differentiation
with the products over here. There is some maybe
branding here. There's maybe some
quality difference between the products.