Competition and Market Structure

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Nickolas Maxwell
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1 Competition and Market Structure

2 Market Structure MARKET STRUCTURE- nature and degree of competition that exist in an industry or market There are five different types of market structures Pure Competition Monopolistic Competition Pure Oligopoly Differentiated Oligopoly Monopoly

five different types of market structures Pure Competition

3 Preview Question Imagine you are a farmer. What product would you produce and why?

4 Pure Competition AKA Perfect Competition Large number of buyers and sellers No one business dominates the market Buyers and sellers are reasonably well informed about items for sale Deal in identical products Buyers do not prefer one seller over another No difference in quality or brand Easy to enter the market and there is little government regulation.

items for sale Deal in identical products Buyers do not prefer one seller over another

5 Pure Competition (continued) Prices are set by demand and supply Sellers advertise little if at all Examples Apples Table salt

6 Review Question What are three characteristics of pure competition?

7 Preview Question Describe your friends jeans and explain how they are similar or different from your favorite pair

Monopolistic Competition Like Pure Competition there are many Firms, however products are slightly different, small changes are made to attract

8 Monopolistic Competition Like Pure Competition there are many Firms, however products are slightly different, small changes are made to attract customers. Differences between products may be real or perceived. It is relatively easy to enter the market and there are few government regulations.

attract customers. Differences between products may be real or perceived.

9 Monopolistic Competition (continued) Seller can raise price without losing business IF people feel product is different. Advertising plays a key role There is heavy advertising The purpose is to build brand loyalty Examples: Jeans, shampoo, fast food

Advertising plays a key role There is heavy advertising The

10 Review Question Design an add for jeans what would you include in the commercial?

11 Pure Oligopoly A few large sellers dominate the market The product is identical to the competition. It is difficult to enter the market do to patents and control of resources. Price is generally set by demand and supply, but sellers have some influence. Sellers advertise little if at all. Examples: Steel, aluminum, gold.

It is difficult to enter the market do to patents and control of resources.

12 Differentiated Oligopoly A few large sellers dominate the market Slight differences between products may be real or perceived. It can be difficult to enter the market due to patents and resource control. Any single firm can cause a change in output, sales and prices in the whole industry. When one firms does something others follow for fear of losing business Sometimes firm use COLLUSION which is when they agree on set prices (illegal)

Any single firm can cause a change in output, sales and prices in the whole industry.

13 Differentiated Oligopoly (continued) Sometimes firm use COLLUSION which is when they agree on set prices (illegal) To attract business firms need to advertise to make products seem different and build brand loyalty. Examples: Auto makers, airlines. Toyota Tacoma Chevy S10 Dodge Ram

firms need to advertise to make products seem different and build

14 Review Question Why so few companies with an oligopoly?

15 Monopoly One seller of a particular product with no close substitutes available Hard to establish a monopoly and extremely difficult to enter the market due to patents, copyrights, and resource ownership There is extensive influence over the price since there is only one supplier, but there is often government regulation.

patents, copyrights, and resource ownership There is extensive influence over

16 Monopoly (continued) There is in theory no need for advertising but you will often see advertising to maintain brand superiority. Examples: utility companies (both public and private), computer operating systems.

17 Monopoly (continued) Types of Monopolies 1. Natural Monopoly-costs are minimized by having a single firm produce the product Ex. One transit authority, water dept., gas co. 2. Geographic Monopoly-a monopoly based simply on its location 3. Technological Monopoly-produce new product and no else can copy because protected by patent 4. Government Monopoly-government controls certain things like defense, sewers, parks Can you think of other monopolies?

One transit authority, water dept., gas co. 2. Geographic Monopoly-a monopoly based simply on its location 3.

Chapter 7: Market Structures Section 3

Chapter 7: Market Structures Section 3 Objectives 1. Describe characteristics and give examples of monopolistic competition. 2. Explain how firms compete without lowering prices. 3. Understand how firms