Economics Chapter 9 Competition and Monopolies Perfect Competition

Economics Chapter 9 Competition and Monopolies

Perfect Competition: Section 1 n n Market Structure- the amount of competition they face. Perfect Competition A Large Market- many buyers and sellers. n A Nearly Identical Product n Easy entry and Exit n Easily Obtainable Information n Independence n

Perfect Competition n Prices are set by Supply and Demand. Information is the key n Agriculture as an Example n Farmers have no control of price, set by the market. n Demand inelastic while supply is dependent on outside factors. n Economic efficiency stressed. n

Monopoly, Oligopoly, Monopolistic Competition n Monopoly- single supplier controls market. Raise prices but not too high, law of demand kicks in. n Barriers to entry- They don’t allow new companies. n State Laws- electric companies n “excessive money capital costs”- Steel production n

Types of Monopolies n n Natural- Government grants exclusive rights. Cable, utilities, bus companies Geographic- business is isolated Technological- patents and copyrights Government- roads and bridge construction

Oligopoly n n Industry dominated by a few suppliers. Some control over price. Product Differentiation- minor differences in quality and features to differentiate. Interdependent Behavior- What one does others follow Collusion- illegally agreeing to raise prices. n Cartel n

Monopolistic Competition n n Large number of sellers offer similar products. Some control over price. Brand loyalty the key. Competitive advertising

Government Policies toward Competition n Antitrust Legislation and Mergers John D. Rockefeller n Interlocking directorates- board members serving on competing companies boards n Sherman Antitrust Act (1890)- prevent monopolies n Clayton Act (1914) n Merger- combining 2 or more corporations n Horizontal or vertical n Conglomerate- huge corporation n

Government Regulation n n From regulation to deregulation. 1980 s and 90 s less regulation and control of certain industries. FCC deregulation led to pay-TV n Foreign competitors the problem for U. S. firms. Auto industry. n