Market Structures Perfect Competition Monopolistic Competition Oligopoly Monopoly

Market Structures Perfect Competition Monopolistic Competition Oligopoly Monopoly

Market Structures Perfect Competition Monopolistic Competition Oligopoly Monopoly Number of Sellers: • Are there many, few, or one seller(s) of the product? • The more sellers there are the more competitive the market is. Barriers to Entry: • Are there any obstacles that prevent other firms from entering the market for the good? • If barriers are weak or absent from the market, the market will be more competitive.

Market Structures Perfect Competition Monopolistic Competition Oligopoly Monopoly Price Control: • Can individual firms in the market exercise any control over the price they charge? • The less control over price, the more competitive the market. Product Differentiation: • Is there a difference between the products? • If the products are identical, there is no reason for sellers to engage in *non-price competition *methods other than price used to attract customers.

Market Structures Pure (Perfect) Competition • Large number of buyers and Sellers of an Identical Product. • Examples: • Crude oil and other commodities • Vegetables

Perfect Competition A large number of buyers and sellers exchange identical products under five conditions. 1)A large number of buyers and sellers. 2)Products should be identical. 3)Buyers and sellers should act independently. 4)Buyers and sellers should be well-informed. 5)Buyers and sellers should be free to enter, conduct, or get out of business.

Market Structures Monopolistic Competition • large number of buyers and sellers of products that are similar to one another but can be differentiated by brand, quality, creativity, etc. • Examples: • Restaurants • Retail clothing and athletic shoes • Hotels

Monopolistic Competition All conditions of perfect competition, except for identical products. Product Differentiation real or imagined differences between competing products in the same industry. Non-Price Competition Ø to differentiate their products from similar products in the market. Ø sell within a narrow price range but try to raise the price within that range to achieve profit maximization. Ø Style, Branding, Celebrity or Athlete endorsement

Market Structures Oligopoly • Only a few sellers of a similar product who dominate the market. • Examples: • Wireless Communications Companies • Airlines • US Automakers • Soft Drinks

Oligopoly Pricing Behavior Firms act interdependently: Price Leadership: Oligopolies know that when one firm lowers or raises prices, others soon follow. Raising the price is risky. If a firm raises the price and the competition does not follow then they will lose money to the cheaper firms. Example: Airline baggage fees, in-flight Wi-Fi Typically prefer non-price competition because their rivals cannot respond as quickly.

Oligopoly Collusion When Oligopolies agree to set prices illegal (because it restricts trade). Two forms of collusion: 1. Price fixing, which is agreeing to charge a set price, which is often above market price. 2. Dividing up the market for guaranteed sales.

Market Structures Monopoly • Only one seller of a product that dominates the market (controls supply and prices) or a single producer of a specific product. • 4 different Types 1. Natural 2. Geographic 3. Technical 4. Government

Monopolies Natural Monopoly occurs when a single firm produces a product or provides a service because it has the ability to produce significantly more efficiently than potential competitors or has a significant head start in the market. • Google • YKK Geographic Monopoly occurs when the location cannot support two or more such businesses. • single gas station on remote exit • small town drugstore or skating rink

Monopolies Technological Monopoly occurs when a producer has the exclusive right through patents of copyrights to produce a product or sell a particular product. • medical drugs • Songs and Music • Unique Inventions Government monopoly occurs when the government passes certain laws reserving the right for a specific trade. • Uranium Processing • Public Utilities