Write down the names of three companies: 1. Company with very little competition. 2. Company with two to three major competitors. 3. Company with many.

Write down the names of three companies:

1. Company with very little competition.

2. Company with two to three major competitors.

3. Company with many competitors.

Which situation do you think describes most markets in the United States?

Activator Chapter 7

Chapter 7 – Market Structures Perfect Competition – also known as pure competition, large number of firms

producing essentially the same product (most competitive) No participants are large enough to have the market power to set the price of a

product. Buyers and sellers are so numerous that no one buyer/seller has any influence

over the market price Firms are thus price takers Price is determined purely by supply and demand

Four Conditions:

1. Many buyers and sellers

2. Goods offered for sale are exactly the same/identical

3. Buyers and sellers have access to information about products

4. Sellers are able to enter the market freely; no barriers to entry

Examples of Perfect Competition in the “Real World”Commodity - basic good with little differentiation from one product to the next with multiple producers selling the same product

Tomatoes Oranges Wheat Corn Onions Plants/trees Crude Oil Stock Market

Monopoly - when one company controls the market of a good/service and can effectively dictate prices(least competitive)

Microsoft (90’s), NFL, China’s Pandas, Comcast, etc.

Complete barrier to entry Government Monopolies – a monopoly

intentionally created by the government Patent – gives a company exclusive rights

to sell a new good or service for a specific period of time

Copyright – the right to control the written word, intellectual property such as lyrics, music, logos, slogans, etc.

Franchise – the right to sell a good or service within an exclusive market (cable TV, power company, water, etc.)

License – a government issued right to operate a business (liquor license, gasoline, etc.)

Monopoly

Price discrimination – dividing customers into groups and charging each customer a different amount

Market Power – ability to control prices and total market output

Price Discrimination

Monopolistic Competition – many companies selling similar products but not identical

Market for Jeans in the U.S.Four Conditions of Monopolistic Competition1. Many firms2. Few artificial barriers to entry3. Slight control over price4. Differentiated products (main difference

between perfect and monopolistic competition)

Monopolistic Competition

Oligopoly – a market structure in which a few large firms dominate a market; a few of the largest firms produce at least 70-80% of the output.

Automobile industry, commercial airlines, beer industry, cartels, web browsers, smart-phones, etc.

Characteristics: High Barriers to Entry Collusion – businesses work together to price fix, agreement to set prices Price Fixing – agreement among firms to sell at the same or very similar prices Cartel – a formal organization of producers that fix prices and control supply

(OPEC)

Oligopoly

Rules of the game:• Monopolies occur when a player acquires all of one property color or all of the

utilities1. Once a player has declared their monopoly to the government, a monopoly can

charge any price they wish for their properties (price discrimination may occur). 2. The government (Coach L) must be notified of any monopoly.3. Other members of the market (other players) can voice complaints to the

government regarding unfair price increases or inconsistent monopoly practices. 4. Responses to complaints can include fines, restrictions on ability to operate for

certain amounts of time (ie: monopolies can only occur for two turns around the board), price ceilings or in extreme cases, jailings or breaking up of monopolies.

• Oligopolies can form when a group of two or more players have all the properties of one color between them.

1. As an oligopoly you can charge any price you wish for your properties; you ALL must agree on the price.

2. Once you set the price, you may not change it until two rounds have passed.

Rules of the game:• Monopolies occur when a player acquires all of one property color or all of the utilities

1. Once a player has declared their monopoly to the government, a monopoly can charge any price they wish for their properties (price discrimination may occur).

2. The government (Coach L) must be notified of any monopoly.3. Other members of the market (other players) can voice complaints to the government regarding

unfair price increases or inconsistent monopoly practices. 4. Responses to complaints can include fines, restrictions on ability to operate for certain amounts of

time (ie: monopolies can only occur for two turns around the board), price ceilings or in extreme cases, jailings or breaking up of monopolies.

• Oligopolies can form when a group of two or more players have all the properties of one color between them.

1. As an oligopoly you can charge any price you wish for your properties; you ALL must agree on the price.

2. Once you set the price, you may not change it until two rounds have passed.• Borrowing and Saving:

1. You might want to determine a way to incorporate the principles of the saving and lending into your market. Example:

1. The center of the board acts as the loanable funds market. 2. Each round you must alternate as a saver and a borrow. 3. Government policies state that you can save 10% of your gross income; you can borrow up to

30% of your income (saved money can be collected 3 rounds after it is saved, borrowed money must be repaid + interest after 4 rounds from the time borrowed).

4. After each player has completed a round, the interest rate will be set based up on the amount of loanable funds in the market (i.e. 200 – 10%, 300 – 8%, 500 – 5%, 1000 – 2%, etc.

5. One person should keep track of the loanable funds that are borrowed and saved each round and payouts to players (this money should come from the loanable funds market or the bank).

Rules of the game:• Monopolies occur when a player acquires all of one property color or all of the utilities

1. Once a player has declared their monopoly to the government, a monopoly can charge any price they wish for their properties (price discrimination may occur).

2. Monopolies will be regulated by the government.3. Any player holding more than one monopoly should be notified by the market to the government for

their unique ability to influence or control the game; this may increase government oversight.4. Other members of the market (other players) can voice complaints to the government regarding

unfair price increases or inconsistent monopoly practices. 5. Responses to complaints can include fines, restrictions on ability to charge certain players,

restrictions on ability to operate for certain amounts of time (ie: monopolies can only occur for two turns around the board, or until a certain amount of money has been made), price ceilings or in extreme cases, jailings or breaking up of monopolies.

• Oligopolies can form when a group of two or more players have all the properties of one color between them.

1. As an oligopoly you can charge any price you wish for your properties; you ALL must agree on the price.

2. Once you set the price, you may not change it until two rounds have passed.• Government Regulation:

1. The government will intervene on its own, or respond to complaints from players throughout the game.

2. A complaint should come from overpricing, crooked business deals and unfair business practices.3. Lottery will be all the fines throughout the game place in the center of the game board.

Chapter 7 – Market Structures Monopoly Game

Simulation of Market StructuresItem Characteris

tic of the Item

Number of Firms

Market Structure

Examples in the Real World

Tic-Tacs Identical Many Perfect Competition

Jolly Ranchers Slight difference

A Few OligopolyTootsie Pops

One

Commodities (Onions, Oil, Gold, etc.)

PayDay One Item

MonopolisticCompetition

Jeans, Watches,Fast Food, etc.

MonopolyMicrosoft, NFL,Comcast, China’s Pandas, etc.

Slight difference

Many

Auto/Airline industry, WebBrowers, etc.

Reflection Questions Monopoly1. Has anyone formed a monopoly or

oligopoly? Explain how this has affected the game.

2. How can monopolies/oligopolies affect the real economy? Explain.

3. Has anyone used the concept of price discrimination? What are examples of this in the real world?

4. How did government regulation affect the game; who gained who lost?

5. What makes a monopolistically competitive market structure different from a perfectly competitive market structure?

Government Regulation1. Redistribution of Wealth - the top 2 earners for each

market must pay a 10% tax to each additional member of group (ex. $2000, $200 to each member)

2. Government Stimulus - The poorest 2 members of the market are awarded a stimulus of $1000, the rest of the members receive a stimulus of $500

3. Taxes on the Rich - The player with the most properties must pay $100 tax to each member of the group

Government Regulation1. Each person involved in a monopoly must forfeit one of their

properties back into the pool. Each member receives $200 stimulus.

2. Tax cuts for the rich: the two richest members of the group receive $500 each, the remaining members have to pay $100 to the middle of the board.

3. Each member of a monopoly must pay a one time tax of $500 to the center of the board. Additionally, they are to serve 1 rounds in jail for abusing market power.

Record the Following1. Position on the board2. Money for each player3. Money in the Lottery4. Properties owned and houses built

1. Describe the four examples of price discrimination listed in the book (targeted discounts, pg. 163)

2. Define Nonprice competition (167).

3. Describe the four examples of nonprice competition (pg. 167-168)

4. Describe the four conditions of monopolistic competition (pg. 167)

5. Define cartel (171). 6. Define antitrust laws and trust

(173).

Daily Assignment Questions – Market Structures

Application – Conditions of Perfect Competition, pgs. 151 - 153

Condition Description Example(s)

1. Many Buyers and Sellers

2. Identical Products

3. Informed Buyers and Sellers

4. Free Market Entry and Exit

Many firms, no firm can gain an advantage in the market

Agricultural industry, stock market

No difference between the products sold by different suppliers

Commodities, tomatoes, corn, low-grade gasoline, notebook paper, and milk (tic-tacs).

People know what they should be paying for the product.

Buyers incentive to save is based on time spent to gather info.

Easy to enter or leave the market

Market for frozen dinners

Application – Targeted Discounts, pgs. 163-164

Condition Description Example(s)

1. Discounted Airline Fares

2. Manufacturers Rebate Offers

3. Senior Citizen or Student Discounts

4. Children Fly or Stay Free Promotions

Cheaper rates for certain fliers.

Cheaper rates for buying in advance, spending a Saturday night.

Receive money back from the supplier.

Refrigerators, cars, tvs, etc.

Lower rate for older/younger people.

Zoos, theaters, restaurants, etc.

Lower rates for families with children because they travel less.

Food discounts (kids eat free), clothing, school expenses, vacations, etc.

Application – Nonprice Competition, pgs. 167-168

Condition Description Example(s)

1. Physical Characteristics

2. Location

3. Service Level

4. Advertising, Image or Status

Brand differentiation based on size, color, shape, texture, taste, etc.

Running shoes, pens, cars, toothpaste, jeans, etc.

Goods can be differentiated based on where they are sold.

Gas stations, movie theaters, scarcity of land.

Sell for a higher price, because of their high level of service.

Restaraunt vs. fast food, Publix, Disney, etc.

Advertising can create differences between products.

Hanes vs. Fruit of the Loom t-shirt.

Statement Concept (s) Explanation

1. Jane can purchase a share of Microsoft stock from Smith Barney or Schwab. There is no difference in the price of the product.

2. GM, Ford and Chrysler comprise 80% of the market share for automobiles.

3. It is nearly impossible to compete with the NFL .

4. In the market for cell phones, there are a number of different companies to select from.

5. OPEC controls the world’s supply of oil.

6. Cilantros offers free meals to children under 12.

7. Publix uses the slogan, “where shopping is a pleasure”, to differentiate their products.

8. Microsoft used its market power to illegally force companies to not use Netscape browsers.

Identical Products

Few companies have market power

One company has market power

Similar but different products

Several businesses collude to control pricesCompanies charge different prices for different consumersService levels differentiate or other non-price factors to appeal to the consumer

Microsoft used their market power to illegally push Netscape out of business

Perfect Competition

Oligopoly

Monopoly

Monopolistic Competition

Cartel, Collusion, Price-fixingPrice Discrimination

Non-Price Competition

Anti-trust laws

Comparison of Market Structures

Perfect Competition

Monopolistic Competition

Oligopoly Monopoly

Number of Firms

Variety of Goods

Control Over Prices

Barriers to Entry

Examples

Many Many A Few One

None Some Some None

None Some Some Complete

None Low High Complete

Commodities – Agriculture, Stocks

Jeans, Fast Food,Toothbrushes

Automobile/Airline Industry, Smart Phone,Web Browsers

Microsoft 90’s, NFL, Cable

1. What is a trust similar to?2. What law prevents monopolies

and mergers that limit trade?3. How have some companies

used strategies to control their market?

4. What was the end result of the antitrust case against Microsoft?

5. What major companies were broken up by the government?

6. What merger was denied in 1997?

7. What does deregulation refer to?

8. What are some industries that have been deregulated?

9. How did deregulation affect some states in the 1990s?

DAQs pg. 172 - 176

1. Perfect Competition2. Monopoly3. Patent4. Oligopoly 5. Collusion6. Monopolistic competition7. Sole Proprietorship8. Partnership9. Corporation 10.Price Discrimination11.Market Power12.Cartel

VIS Terms

1. Perfect Competition2. Many buyers and sellers, identical Products (price takers), informed

consumers/sellers, low barriers to entry (enter and exit easily)3. Barriers to entry4. Monopoly5. Natural 6. The monopoly can dictate prices (unstable)7. Patent8. Government9. License10. Price discrimination11. Market power12. Monopolistic 13. Many firms, low barriers to entry, brand differentiation, slight control over price14. Physical characteristics, location, service level, advertising image or status

Study Guide

15. Oligopoly16. Collusion/price fixing17. Anti-trust18. Microsoft19. Business organization20. Sole proprietor21. Partnership22. General 23. Limited 24. Limited liability25. Articles of partnership26. Corporation27. Sole proprietorship28. Corporation 29. Stock

Study Guide30. Partnership31. Sole proprietorship32. Closely held33. Publicly held34. Partnership35. Corporation36. Multinational37. Horizontal38. Vertical39. Conglomerate40. Franchise41. Cooperative 42. Consumer43. Service44. Producer

1. Business Organizations Chart2. Google Video Questions3. Market Structures Simulation4. Chapter 7/8 Study Guide5. Chapter 7/8 Crossword Puzzle6. Notes7. VIS Terms Chapter 7/88. Daily Tens

Binder check

1. Name2. Date (3-15)3. Class Block4. ID: A, B or C5. Chapter 7 + 8 Test

Include

1. List 5 examples of commodities

2. What are a few things that would make working for Google unique?

3. Which of the 4 market structures does the United States most closely resemble? Explain your answer.

Extra Credit