Have you seen the movie A Beautiful Mind starring Russell Crowe? The movie is ab

Question

Have you seen the movie A Beautiful Mind starring Russell Crowe? The movie is about the life of John Forbes Nash, Jr. who won the Nobel prize in economics for his work on game theory, which is arguably the heart of the study of oligopoly. In fact, "Nash equilibrium" we will earn in this chapter takes its name after this very John Nash (who, unfortunately, just passed away last year due to a tragic car accident)! He sure was a fascinating man and if you are interested, you can see the clip from the movie where Nash discovers this non-cooperative equilibrium athttps://www.youtube.com/watch?v=2d_dtTZQyUM

If perfect competition is one end of the spectrum and monopoly the other end of the extreme spectrum, monopolistic competition and oligopoly are in between those two with monopolistic competition closer to perfect competition and oligopoly closer to monopoly. WHY? Graphically it should look something like this. HOW?

Perfect Competition Monopolistic Competition       Oligopoly      Monopoly
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Instead of the usual graphical representation, in oligopoly one learns a new theory called game theory that explains the fascinating interactions of the parties involved in an oligopolistic market. Here are some videos topics that are useful.
Oligopolies, duopolies, collusion, and cartels
Prisoners' dilemma and Nash equilibrium
Why parties to cartels cheat

Explanation / Answer

When we talk about market competition the following are the four types which we need to consider:-

Distnguished / Homogeneous

product

The above table clearly shows the relationship between the four types of competition in the market and why Monopolistic competition is closer to perfect competition and why oligopoly is closer to monopoly.

Market Structure Number of firms

Distnguished / Homogeneous

product

Ease of entry Perfect Competition Too many Homogeneous Very easy Monopolistic Competition Many Differentiated Relatively easy Oligopoly Few Homogenous / Differentiated Not easy Monopoly One Product with no substitute Impossible

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