Types of competition

0:00- [Announcer] So I have four different scenarios here of stores selling some type of clothing, and I use AI to generate these pictures. Some of them are a little bit interesting. To try to generate perfect competition, Perfect competition. At one extreme and then in another extreme, a monopoly and then I also tried to show some things in between, like monopolistic competition.

0:28Monopolistic competition. And also an oligopoly. Oligopoly. Now I'm gonna remind you what these words mean, and then I want you to pause this video and figure out which of these pictures, at least I tried my best to represent each of these. So perfect competition is when you have many sellers in the market, many producers in the market, and they're all selling pretty much the same thing.

0:59And so there's a lot of competition around price. No one can really raise their price too much because then people will just go to the other store that sells something very similar, if not identical. So it tends to be pretty good for consumers. At the other end, you have a monopoly where there's only one provider, one producer, and so people just kind of have to go to that one if they want to buy that and so you could imagine that monopoly has a lot of power to set the price that they want.

1:29Now, monopolistic competition is a situation where there is competition, but each producer or each seller, they're a little bit different. They're a little bit differentiated, so maybe they are the only ones that sell the type of thing that they do, although there might be still competition for people who sell slightly different types.

1:47And then an oligopoly is when you only have a few players in the market, maybe only two or three players, and they might compete very much like perfect competition or monopolistic competition or they might coordinate in some ways with a little bit of a wink, wink, nod, nod.

2:04Not that that's illegal in most places, but they might do that in order to control prices and act a little bit like a monopoly. So pause this video and figure out which of these pictures is which. Alright, now let's do this together. So in this first picture, I intentionally had the AI generate three pant boutique, I guess jean boutique right over here that are all selling pretty much identical jeans.

2:28So this one over here, I would categorize as perfect competition. If this middle boutique all of a sudden tried to raise their prices, and I'm assuming they're even selling the exact same brands of jeans, well then why would you buy from it? You would just go to the person right next to it.

2:43So there's no incentive to have a higher price and then sometimes people might wanna lower their prices a little bit to take business from the other two, but of course, if they lower price, they might actually be, or they're very likely to be lowering their profit.

2:56And then the other two will lower their price as well. So it's a pretty tough situation to be in as a seller. Now, the monopolistic competition, that's this one over here where you have three boutiques that are all selling clothes, but they're selling a little bit different clothes.

3:11This looks like a little bit more formal wear. This looks a little bit more casual. This looks like sportswear. If you were in desperate need for some type of clothing, you didn't care, I guess you could go to any of them, but there is some differentiation. Okay, well this, I like this sporting goods, or maybe these two stores they're selling similar types of clothing, but I just like the brand here, or I like the look here a little bit more than the look on the one on the left.

3:35So I would consider that monopolistic competition. Each store has their own thing, but they're still competing around clothes. Now the monopoly one might have been pretty easy to pick out. I have a jacket store here and a frozen tundra. We have some people here who are desperate.

3:53Everyone looks surprised in this picture, but they're desperate to get, everyone seems to be yelling. They're desperate to get some jackets and so you can imagine this jacket store, if they wanted to, they could really jack up their prices and these people might still want to go buy those jackets because there really is no other option.

4:13And then last but least, we have the situation where we have two jacket stores and from a competition point of view, this could go in multiple directions. If these two owners here and I'm assuming those are the owners, if they wanted to coordinate and say, "Hey, let's just both raise our prices together and not lower our prices much."

4:31well then they might together act a lot like a monopoly. But if they're like, "No, I don't wanna coordinate with you." or maybe the government where they are says, "Hey, it's illegal to coordinate." To collude is oftentimes the word or to form a cartel, a cartel is a group of providers, producers, who work together to set prices so that they don't have to deal with all of the problems of competition from their point of view.

4:56And by the way, in many economies, cartels are not allowed and colluding where you say, Hey, you raised the price, I raised the price. That's also not allowed because it's bad for consumers. But that's what we have going on or potentially going on here in the oligopoly.

5:11And once again, not oligopolies, where you have only a few providers are non-competitive. They could actually be very competitive, have a lot more of the behaviors of perfect competition, or they might explicitly or implicitly coordinate in some way so that they behave a little bit more like a monopoly.

5:27It all depends on the scenario.