The previous chapters discussed two market extremes: competitive markets and monopolies. However, this is rarely seen in the real world. Most of the time, markets are imperfectly competitive; falling between the plan cases of perfect competition and monopoly. Two scenarios of imperfect monopoly are oligopolies (a market structure in which only a few sellers offer similar or identical products) and a monopolistic competition (a market structure in which many firms sell products that are similar but not identical).
This chapter discussed a monopolistic competition in detail. A monopolistic competitive market differs from a perfectly competitive market in that it operates on the downward-sloping portion of the average-total cost curve. Also, each firm charges a price above marginal cost (like a monopoly).
I have a question about the concentration ratio. What is it calculated? Is it used to determine when governments intervene (as they sometimes do in monopolies?) Also, I was looking at the ratios and the highest ones are for markets that I see little correlation between: breakfast cereal, aircraft manufacturing, etc; how does one gain more market power in a monopolistic competition?
I also hate how all of this is up for debate. One cannot finitely answer how many firms are considered "many", etc.
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