Monopolistic Competition

Chapter seventeen

Monopolistic Competition

You walk into a bookstore to buy a book to read. On the store's shelves, you find a James Patterson thriller, a Maya Angelou memoir, a Ron Chernow history, a Stephenie Meyer paranormal romance, and many other choices. When you pick out a book and buy it, what kind of market are you partici- pating in?

On the one hand, the market for books seems competitive. As you browse, hundreds of authors and publishers vie for your atten- tion. And because anyone can enter the industry by writing and publishing a book, the business is not very profitable. For every highly paid writer, there are dozens of struggling ones.

On the other hand, the market for books also seems monopo- listic. Because each title is unique, publishers have some latitude in pricing. Sellers in this market are price makers rather than price takers, and the price of books greatly exceeds the marginal cost of producing them. The list price of a typical hardcover novel, for instance, is about thirty dollars, but the cost of printing one additional copy is less than ten dollars. The price of e-books is often around fifteen dollars, while the marginal cost of permitting one extra download is zero.

Seventeen-one. Between Monopoly and Perfect Competition oligopoly a market structure in which only a few sellers offer similar or identical products