Question

how non-price competition and research and development are critical in Monopolistic competition and Oligopolies

how non-price competition and research and development are critical in Monopolistic competition and Oligopolies

Homework Answers

Answer #1

Monopolistic competition is characterized by presence of many small firms, each selling similar but slightly differentiated products. The more differentiated the good is, the higher the price-setting power of the firms. Research & Development (R&D) equips the firms with better technology that allows them to cut costs, leading to higher profitability.

Oligopoly is characterized by presence of a few large firms selling homogeneous goods, and their price-output decisions are interdependent. Therefore if firms compete in quantity, one firm setting its quantity before others, we can find a leader-follower competition in the market which finally leads to equilibrium.

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