Oligopoly Model Of Monopolistic Competition

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The Monopolistic Competition is a market structure characterized by a large of seller and buyer; differentiated though comparable, products; free entry and exit; perfect information; and the opportunity for normal profits in a long run equilibrium. The monopolistic competition and oligopoly models of seller behavior, it is important to recognized the dynamic nature of real world and exist when individual producers have to moderate influence of over the product prices, where each product enjoys a degree of uniqueness in the perception of a customers. Oligopoly is a market structure when they characterized by few sellers and interdependent price- out decisions. There is an interaction between the quality and variety where the customers taste…show more content…
The consumers are bounded rational because their choice is probabilistic, it means that consumer have their own different choices. Monopolistic can produce a unit of good with quality at a cost. Monopolistic is risk neutral. Preferences of a consumer over a unit of good with quality are given by twice continuously differentiated utility function. The consumer wants to buy at most one unit of the monopolistic goods. Stole’s constraint reduction theorem ( Stole,2002) that states that for the optional allocation for two constraints, the lowest type gets her reservation utility and the high type gets the information rent. The consumers of a half low type would decide to stay out of the market and half of high type consumers will decide to behave and this will lead to drop in the monopolistic profits. There are two ways the monopolistic can deal with problem, violate the binding constraints by the amount of order or create multiple flavors for quality level. The consumers will choose the options designed to them with probabilities and the screening model with fully rational consumers. A preference diversity change because of the timing constraint firm has to decide on the product proliferation on the market realization. The consumers will choose the options designed to them probabilities, as predicted by the screening model with fully rational consumers. The flavor proliferation…show more content…
It means, there is a higher quality products and usually have a larger number of flavors. Interaction quality and variety in oligopolistic market, where the consumers tastes are differentiated in vertical dimension (quality) and the horizontal (flavor).Models correlation between the quality and variety depends on the way they enter the consumer’s utility, their joint distribution and market structure. It shows that there is a proliferation of flavors by means of the number of flavors it would increases with the quality of the good. The concept of this study discusses and introduces the concept of nearly rational consumer. The main problem is that half of low type consumers will choose not to participate, while the half of high type of consumers will behave. The consumers have their own choices in the market. The preferences of consumers are quasilinear in money, which each consumer wants to buy at most unit of the monopolist goods. The monopolist can deal with a problem, violate the binding constraints by the amount of order, or they can create multiple flavors for each quality
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