Market Structures Markets range from very competitive with many consumers and producers to very limited with only one buyer or supplier Market Structure Video Competition Pure Competition Monopolistic Competition OligopolyMonopoly

Take a moment and try to categorize the following…what common traits do they share? Differences?

Capitalism - maximize efficiency by protecting competition –Indiv own FOP - decisions based on max. rewards (Profit) –Usually => more efficient use of FoP’s Don’t allow monopolies (unfair power or trade) –Capitalism game *Rewards those who use resources efficiently => max profit Profit - what is left after costs are met *Those who are inefficient => lose (go out of bus.) –Incentive of Capitalism is to Maximize Profits –Types of Capitalism include…

–Pure Competition –purely hypothetical system –Assumes: Laissez-Faire Gov’t w/ many small businesses making exactly the same product (no variations in any way) in exactly the same way and consumers have perfect knowledge of all prices (so they can decide based only on price), Business operate at “Normal Profit (Costs +a little profit, just barely able to survive) No gov’t involvement other the to protect the nation Many very small producers Produce a homogeneous product – exactly the same Since there are many alternatives can’t compete on Price – already is at “Normal Profit” – able to pay your bills with a very small profit Consumers have perfect knowledge of all prices – allows them to ‘Vote by Feet” - switch if there is a lower alternative No Barriers to Entry – few rules, little start up costs If someone can produce cheaper, that advantage is only temporary since everyone knows everything => people shift production and consumption very quickly

Pure Market or Perfect Competition Market producers are “Price Takers” – *Can’t control the price – if they raise prices - consumers won’t buy (perfect knowledge) – if they drop prices they go out of business (Normal Profit) No real incentives to compete since everything is homogeneous Not the real world – allows us to look at how markets function The internet is coming close – allows us to compare prices around the world (as long as prices are on the net) –Guarantees lowest prices and best quality –Not perfect knowledge While it is hypothetical – It allows you to examine Markets w/o some of the externalities of incentives

Real World Capitalism – Has several different types Depends on government and number of sellers Monopolistic Competition *Has monopolistic power – some control over prices but not total control *Some government controls – labor laws, minimum wages, OSHA, price ceilings *Not exactly homogeneous Product – allows some ability to differentiate between product – Color, style materials *Many suppliers but not too many – offers many options *Consumers do NOT have perfect information on price and style *Does not Guarantee the lowest cost of Best price but is mostly efficient –Competition => “Price Takers” but not completely

Other Market types limit the number of producers (Sellers) Just a Few producers – limits the am’t of competition Oligopoly – Just a Few sellers Usually control a very limited resource – oil, gas, precious metals To guarantee competition => often act together to force out competition Collusion –companies acting together..usually illegally Often called a Cartel – Group of businesses operating together to control price by limiting supply – OPEC, DeBeers (Diamonds), Drugs Control distribution and sales Price Setters, but not completely Must compete with others in the cartel One Seller – Monopoly Price Setters Complete control over Market – no competitors Least efficient, highest prices…

Type of Economy Ease of Starting a new Business Number of Competitors (Sellers) Type of Goods produced Number of Buyers Perfect Competition Easy - No Barriers to new companies Many Same - Homogeneous Many Monopolistic Competition Few if any ManysimilarMany Oligopoly SomeFew Homogeneous Many Monopoly ManyNone Homogeneous Many