Audio Transcript 

Narrator: When we characterize market structures, we consider monopoly to be one extreme, a market in which there is only one firm supplying a good or service and where there are barriers to other firms entering the market. 

Narrator: Perfect competition is the other extreme, a market in which there are many sellers, many buyers, a homogeneous product, and free entry and exit. 

Narrator: Between these two extremes are market structures that share characteristics of both. 

Narrator: An oligopoly is a market dominated by a few sellers. The rivalry between Marge and Maggie is typical of an oligopoly, where a few interdependent firms are affected by each other’s activities. 

Narrator: Monopolistic competitors resemble perfect competitors in some ways but can appear monopolistic if they succeed in differentiating their product from the competition. 

Narrator: Mort's new MegaBird Ostrich Farm typifies the monopolistic competitor. Let's take a closer look at his firm and his market. 

Narrator: Like a perfect competitor, Mort operates in a market with few barriers to entry, and firms can enter the market freely as profits are made or lost. However, Mort produces a product that is not homogeneous. 

Narrator: Unlike a perfect competitor, Mort has been able to differentiate his product. His competitors have a close substitute, but they don’t have the megabird. 

Narrator: The result of Mort’s innovative breeding techniques and his clever branding and claims of superiority have enabled his megabird to capture the imagination of his buyers. This is differentiation through advertising. 

Narrator: Mort’s success in differentiating his product gives him some flexibility in setting his price. 

Mort: Now that I have a special ostrich, I’m not stuck charging the same price as all the other farmers—I can charge more! 

Narrator: People are willing to pay more for his meat because they believe it to be a better product. 

Narrator: Before he created the megabird, Mort operated in a perfectly competitive market. He was a price taker. At any level of output, he could sell his product only at the market price. 

Narrator: Now that he has differentiated his product, he has become a monopolistic competitor. He has some flexibility in his pricing because his product is unique in some way. 

Narrator: Mort  is a price searcher, and the demand curve for his megabird ostrich meat is downward sloping. 

Narrator: For a monopolistic competitor, the slope of product demand curve is affected by the level of differentiation and number of competitors. 

Narrator: The better Mort becomes at differentiating his product, the more sloped the demand curve becomes. 

Narrator: Like all monopolistic competitors, Mort must continually work to differentiate his product in order to maintain his status as a price searcher. 

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