Competition and Market Structures How well do you remember the four market structures? Write them out with two example. Go Back Over Your Notes!!

Competition and Competition and Market StructuresMarket Structures

How well do you remember the four market structures? Write them out with two example.

Go Back Over Your Notes!!

What is a Market What is a Market Structure?Structure?

The The naturenature and and degreedegree of of competition among firms in the competition among firms in the same industrysame industry

We classify We classify 44 Market Structures by Market Structures by asking questions like:asking questions like:

We classify Market Structures by We classify Market Structures by asking:asking:

1.1. How much How much control over pricecontrol over price does does each firm have?each firm have?

2.2. HowHow many firmsmany firms are competingare competing in the in the market?market?

3.3. How How large/what sizelarge/what size are each of the are each of the firms?firms?

4.4. What are the What are the characteristics of the characteristics of the productsproducts in each market? in each market?

5.5. How easy is it for new firms to How easy is it for new firms to enter the enter the marketmarket??

Market StructuresMarket Structures

Perfect CompetitionPerfect Competition

Monopolistic CompetitionMonopolistic Competition

OligopolyOligopoly

MonopolyMonopoly

MONOPOLYMONOPOLY

Warm UpWarm Up::

Why did the U.S. gov’t Why did the U.S. gov’t make monopolies illegal??make monopolies illegal??

MARKET STRUCTURESMARKET STRUCTURES::

Perfect CompetitionPerfect Competition

Meets 5 Conditions:Meets 5 Conditions:

1.1. Large number of buyers and sellersLarge number of buyers and sellers

2.2. Buyers and sellers deal in Buyers and sellers deal in identicalidentical productsproducts

3.3. Buyers and sellers Buyers and sellers act independentlyact independently

4.4. Buyers and sellers are Buyers and sellers are well-informedwell-informed5.5. Buyers and sellers are free to Buyers and sellers are free to enter enter

into, conduct, or get out of into, conduct, or get out of businessbusiness

Imperfect Competition-Imperfect Competition-lacks 1 or more of the 5 conditionslacks 1 or more of the 5 conditions

1.1. Monopolistic CompetitionMonopolistic Competition

2.2. OligopolyOligopoly

3.3. MonopolyMonopoly

Monopolistic CompetitionMonopolistic CompetitionHas every Has every condition except condition except identical identical

productsproducts!!These Firms can These Firms can monopolizemonopolize a small part a small part

of the market by:of the market by:

1.1. Product DifferentiationProduct Differentiation – make their – make their product seem product seem special special through adsthrough ads

2.2. Non-price CompetitionNon-price Competition - use of - use of advertisements, giveaways, promotions advertisements, giveaways, promotions

to get your businessto get your business

OligopolyOligopolyWhere few very large sellers Where few very large sellers

dominate the industrydominate the industry

Any firm within this market Any firm within this market structure can cause a change structure can cause a change

in output, sales, or pricesin output, sales, or prices

A few control 2/3s of the industry

Must use Must use InterdependentInterdependent BehaviorBehavior

Collusion:Collusion:•A A formal agreementformal agreement to set prices or limit to set prices or limit output, acting as one company.output, acting as one company.

Price Wars:Price Wars:•When one firm When one firm lowers priceslowers prices other firms other firms will will followfollow in a series of price cuts that in a series of price cuts that result in unusually low pricesresult in unusually low prices

MonopolyMonopolyMarket Structure Market Structure

with only with only

1 seller1 seller of a of a

particular productparticular product

The federal government has outlawed monopolies for over 100 years.

Trustbusting T.R. and the Sherman Anti-Trust Act started it off!

Natural MonopolyNatural Monopoly-A market situation where -A market situation where costs of costs of

productionproduction are minimized are minimized by having a by having a single firm produce the productsingle firm produce the product

What are the other natural monopolies in Western New York?

Geographic MonopolyGeographic MonopolyA monopoly based on A monopoly based on

absenceabsence of other sellers of other sellers

LUCK OF LOCATION!!!

Example: Thruway gas stations!!

Technological Technological MonopolyMonopoly

Based on the Based on the ownership of a methodownership of a method of of production, scientific advance, method production, scientific advance, method

or processor process

•Patents - granted by government, exclusive right to manufacture, use, or sell any new and useful Invention

•Copyrights - given to art or literary work and is exclusive right of artist to publish, sell, or reproducefor their lifetime plus 70 years

Government MonopolyGovernment MonopolyGovernment owns and Government owns and operatesoperates a monopoly at a monopoly at

National, State and Local levelsNational, State and Local levels

What other services does govt provide us that are paid for with our taxes?

HOMEWORK HOMEWORK

Grab your textbook and you have the Grab your textbook and you have the remainder of the period to work on remainder of the period to work on this assignment. It will be collected this assignment. It will be collected for a grade tomorrow!!for a grade tomorrow!!

Top Ten Most Common Words Top Ten Most Common Words WRITTENWRITTEN in the U.S. in the U.S.

10. For10. For9. It9. It

8. Was8. Was7. Is7. Is6. To6. To5. In5. In4. A4. A

3. And3. And2. Of2. Of1.1. TheThe

It’s your time to It’s your time to shineshine with with designdesign!!

Design advertisement posters for the Design advertisement posters for the market structures your group has market structures your group has been assigned. Your posters must been assigned. Your posters must

have the following…have the following…

*A Slogan*Picture of the Product or Service*Company Name

Please: DO NOT write what Market Structure it is!

Pop Quiz Time!!Pop Quiz Time!!

1.1. Name three products that would fall Name three products that would fall in the monopolistic competition in the monopolistic competition market structure.market structure.

2.2. What makes an oligopoly, an What makes an oligopoly, an oligopoly?oligopoly?

3.3. What are two different industries What are two different industries that fall in oligopoly?that fall in oligopoly?

4.4. Name three legal monopolies.Name three legal monopolies.

Pop QuizPop Quiz

5. What is product differentiation?5. What is product differentiation?

6. What is collusion?6. What is collusion?

7. How do price wars help consumers?7. How do price wars help consumers?

8. What are three perfect competitive 8. What are three perfect competitive firms?firms?

9. What makes perfect competition 9. What makes perfect competition perfect?perfect?

10. Why are most monopolies illegal?10. Why are most monopolies illegal?

Answers:Answers:

1.1. 1 pt. each: shampoo, cereal, soap, 1 pt. each: shampoo, cereal, soap, hair spray, soup, computer games.hair spray, soup, computer games.

2.2. 1 pt.: a few firms; 1 pt.: 2/3’s 1 pt.: a few firms; 1 pt.: 2/3’s industry.industry.

3.3. 1 pt. each: soda, gelatin, fast food, 1 pt. each: soda, gelatin, fast food, gas manufacture, local grocery gas manufacture, local grocery markets, etc.markets, etc.

4.4. 1 pt. each: Nat’l Fuel, Nat’l Grid, 1 pt. each: Nat’l Fuel, Nat’l Grid, Books, Songs, Scripts, © Books, Songs, Scripts, ©

Answers:Answers:

5.5. 1 pt.: advertising to make g&s seem 1 pt.: advertising to make g&s seem unique although not really; make it unique although not really; make it seem seem specialspecial. .

6.6. 1 pt.: When firms work together to 1 pt.: When firms work together to limit production or raise priceslimit production or raise prices

7.7. 1 pt: When firms compete and keep 1 pt: When firms compete and keep lowering prices!!lowering prices!!

Answers:Answers:

8.8. 1 pt each: any farm products: 1 pt each: any farm products: apple, orange, beef, milk, etc.apple, orange, beef, milk, etc.

9.9. 2 pts: 2 pts: many firmsmany firms that sell that sell identicalidentical productsproducts

10.10. 1 pt: too much power, price 1 pt: too much power, price gouging, etc.gouging, etc.

What happens when the What happens when the market fails??market fails??

HOMEWORK:HOMEWORK:

Create a 4 – Square for each Create a 4 – Square for each of the four market failuresof the four market failures