Main article Monopolistic
Main article Monopolistic Competition: Monopolistic Competition Monopolistic competition is a market structure characterized by the presence of many companies that sell products heterogeneous close substitutes, but imperfect, with each other. Being heterogeneous products, each producer has some market power over the good it produces, as monopolistic competition can be defined as a market structure intermediate between monopoly and perfect competition. The classic model of monopolistic competition is due to the British economist Chamberlin. Chamberlin argues that, due to the heterogeneous nature of property and some market power held by each producer on them, the companies believe face a demand curve estimated or “imaginary”, whereby the decisions of other producers are given. But for the rest of competitors is not optimal to keep their decisions to a unilateral variation of the output of the ith company.Thus, there is a real demand curve, which reflects the decisions of all producers and that will determine the market equilibrium. In the short term, the market equilibrium is reached when the decisions taken by companies as the demand curve “imaginary” are consistent with the real demand curve. That is, at the point where both are equal. In the long run, under the assumption of free entry and exit, there can be no special benefit, so that equilibrium is reached at the point where the demand curve “imaginary” tangent to the long-run average cost and agrees with the actual market demand. The result is the excess capacity theorem Chamberlin, under which the company does not achieve the efficient level of production in the long term (minimum average cost). The key models of monopolistic competition is the existence of non-homogeneous products.This is usually explained by the existence of product differentiation, ie firms produce different varieties of the same asset, which gives them some market power over it. Product differentiation can be: horizontal, consumers demand goods with different characteristics, or vertical, consumers have a different willingness to pay for the same property. The classic model of horizontal differentiation is the Hotelling spatial competition (1929).