The 4 Types of Market Structures Varying levels

Perfect Competition l Characteristics: l l l Many small firms (“price takers”) Easy to

Perfect Competition l Producers maximize profits by: l l Maximizing efficiency Lowering costs while

Results of Perfect Competition DOWNWARD pressure on price and profits l Totally elastic demand

Monopolistic Competition l Characteristics: l l Many firms Easy to enter/exit Similar, but “differentiated”

Monopolistic Competition l Products can be differentiated (from competition) by: 1) Product Quality (real

Monopolistic Competition: The Demand Curve l P Top and bottom is elastic: price takers

Oligopoly A few big firms control the majority market share l More difficult to

Competition amongst Oligopolists? l Competition is usually non-price, as firms are too big to

The Oligopolist’s Demand Curve l The “kinked” demand curve l Elastic top: drop price

The kinked demand curve l Inelastic bottom: if competitor drops price, leave them to

Extent of Oligopolies l Very common l Secondary Sector l Retail becoming more so…

Monopoly l One producer l No close substitutes l Very difficult to enter l

Examples of Monopolies: l Legal and natural monopolies most common l Legal: gov’t grants

Pros and Cons? l Brainstorm the advantages and disadvantages of having one producer/supplier for

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The 4 Types of Market Structures Varying levels of business competition

Perfect Competition l Characteristics: l l l Many small firms (“price takers”) Easy to enter/exit Identical products (Ex: cubed white sugar)

Perfect Competition l Producers maximize profits by: l l Maximizing efficiency Lowering costs while trying to sell as much as possible at the market price

Results of Perfect Competition DOWNWARD pressure on price and profits l Totally elastic demand curve l MR = D l

Monopolistic Competition l Characteristics: l l Many firms Easy to enter/exit Similar, but “differentiated” products (ex: Italian food restaurants) Very common in Canada

Monopolistic Competition l Products can be differentiated (from competition) by: 1) Product Quality (real or perceived) l 2) Services offered (speed, attention, followup) l 3) Location (accessibility of time and place) l 4) Promotion/Packaging (how is the advertising different than competitors’, does the packaging stand out on the shelf) l

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Monopolistic Competition: The Demand Curve l P Top and bottom is elastic: price takers due to competition. Middle Portion is inelastic: price makers due to differentiation. D Q Total Revenue highest in middle portion.

Oligopoly A few big firms control the majority market share l More difficult to enter/compete l

Competition amongst Oligopolists? l Competition is usually non-price, as firms are too big to want a price war

The Oligopolist’s Demand Curve l The “kinked” demand curve l Elastic top: drop price to compete by increasing market share

The kinked demand curve l Inelastic bottom: if competitor drops price, leave them to lose money l Therefore, “pricesticky” (looks like collusion)

Extent of Oligopolies l Very common l Secondary Sector l Retail becoming more so…

Monopoly l One producer l No close substitutes l Very difficult to enter l “price makers”: direct (price) or indirect (supply) The commonly-used demand curve

Examples of Monopolies: l Legal and natural monopolies most common l Legal: gov’t grants one licence, patent, etc. l Natural: high fixed/start-up costs

Pros and Cons? l Brainstorm the advantages and disadvantages of having one producer/supplier for customers and producers