Chapter 7 Market Structures

Bell ringer 2/10 List 5 different ways that companies compete with each other. Turn and talk

4 Types of Market Structures Perfect Competition Monopolistic Competition Monopoly Oligopoly Fill in chart using book with partner

Perfect Competition A market structure in which a large number of firms all produce the same product Production is small Does not influence prices

4 Conditions for Perfect Competition Many buyers and sellers Identical Products Commodity-Same product regardless of who makes or sells Milk, Notebook Paper, Water, Gasoline Pt. 1 & 2 20/20 “Over the Barrel”

4 Conditions for Perfect Competition continued… Informed Buyers and Sellers Buyers are looking for the best deal Free Market Entry and Exit Markets w/more firms (comp) have lower prices

Bell ringer 9/23 List the four conditions of perfect competition that we discussed yesterday.

Monopolistic Competition Market structure in which many companies sell products that are similar but not identical.

4 Conditions of Monopolistic Comp. Many Firms Few Artificial Barriers to entry Slight control over price Differentiated Products

Oligopoly A market structure in which a few large firms dominate a market Why would these companies set their prices higher and produce less of their products? http://www.youtube.com/watch?v=JMq059SAQXM Examples: Four music companies control 80% of the market - Universal Music Group, Sony Music Entertainment, Warner Music Group and EMI Group Six major book publishers - Random House, Pearson, Hachette, HarperCollins, Simon & Schuster and Holtzbrinck Four breakfast cereal manufacturers - Kellogg, General Mills, Post and Quaker Two major producers in the beer industry - Anheuser-Busch and MillerCoors

Monopoly wksht

9/24 If you decided that you wanted to start a business, what types of factors would be present that might prevent you from being able to compete?

Barriers to Entry Competing with Larger Firms Problems Typically work together with other large firms ILLEGAL Price War-lowers the market price Collusion-agreement to set prices and production levels low Price Fixing-one price for the same good Cartels-Organizations that agree to coordinate prices and production

Monopoly A market structure dominated by a single seller. What happens if: You have a rare disease and to cure the disease you must take a new antibiotic to help cure it, and without the antibiotic your future is terminal? What if only one firm makes that antibiotic? Problem w/monopolies—take advantage of their market power and charge high prices

Classifying Markets Activity With a group of no more than 3, classify the firms/products on the list you were given under one of the four market structures we have discussed. Include the following information: 1. Name of firm/product 2. Type of market structure it falls under 3. Reasons that you believe the firm exists in that market

Natural Monopolies A market that runs most efficiently when one large firm supplies all of the output. Example: Water -Technology and change can change natural monopolies. Ex: Phone companies

Bell ringer 9/29 Imagine that you and your friends plan to open a new convenience store. Brainstorm a list of 5 expenses that would be your start up costs.

How a Monopoly Forms: If a firm’s start-up costs are high, and its average costs fall for each additional unit it produces, then this is called an economies of scale. (Characteristics that cause a producer’s average cost to drop as production rises)

Barriers to Entry & Costs Price Start-Up Costs Technology Efficient Market Lowest prices possible Will just cover costs

Bell ringer 9/25 What could be some other “barriers to entry” into a market besides start up costs?

WHAT IS THE GOAL OF THE GAME OF MONOPOLY?

One company owns all of the diamond mines in South Africa?

Bell ringer 10/1 From what we watched yesterday, list 3 reasons that you believe Wal- Mart to be either good or bad for our economy.

How Monopolies Make Money Price Discrimination-division of customer into groups based on how much they will pay for a good. Discounted Airfare Manufacture’s rebates Senior Citizen or Student Discounts However for price discrimination to work a market must meet three conditions Some market power Distinct customer group Difficult resale

Monopoly Subsearch Complete the subsearch using the following directions S: Skim-Scan-Survey U: Underline key points B: Bracket major passages and create notes in margin S: Place symbols within the text (Stars, asterisk, arrows,etc. E: Enumerate lists, Series A: Abbreviations R: React Personally C: Make Connections to your life H: Highlight P.S. : Summarize each section from text in 3-4 sentences.

10/2 What is a Price War? List two ways that firms compete without lowering prices

Non Price Comparison Phsyical Characteristics Location Service Level Advertising, image or status

Government Monopolies A monopoly created by the government Gov can issue a patent. gives a company exclusive rights to sell a new good or service for a specific period of time. Patents guarantee that companies can profit from their own research without competition. Franchise-the right to sell a good or service within an exclusive market. Ex: School Cafeteria, McDonalds, Subway.

Industrial Organizations Government allows companies in an industry to restrict the number of firms in the market Ex: MLB, NBA, NFL

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