Oligopoly is a few large firms that control the market. Entry into this market is very difficult. Oligopoly is at the complete opposite end of the spectrum from perfect competition. Monopolistic competition is located in between oligopoly and perfect competition. Entry into the monopolistic market has free entry that is similar to perfect competition. Oligopoly is very difficult to enter as it has numerous firms that dominate the industry. In oligopoly there is no competition as there is no product differentiation between the other firms. They do have control over their prices. In monopolistic competition there is product differentiation and price competition. A monopolistic competitor has some control over their prices. In perfect competition the prices of products are lower as there is no competition between the firms.
Game theory is the method that John Neumann and Oskar Morgenstern defined in the 1940's as the firms accounting for the decisions they make or what other firms decisions will have on each other. It identifies the different solutions or ideas in a payoff matrix. The payoff matrix is highly effective as it distinguishes the different decisions that firms have. In the market of oligopoly it is controlled by self interest and are untouched by Governments. It allows the ability for individuals to get what they want. Collusion is an agreement between the firms to identify they quantities each are able to produce or fixed prices. The cartel is an agreement of firms acting as one rather than two.
Monopolistic competition is the best choice for the market type as is made up of various firms and have differentiated products. There is constant price competition that is favourable to the consumer. The consumer will be the one benefiting from this competition as they will get the lowest price for the products desired. I feel like I am in control of my purchasing choices. By the firms advertising to inform and draw consumers to purchase their products we have the information needed to make a decision of purchasing.
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