SSEMI4 The student will explain the organization and role of business and analyze the four types of market structures in the U.S. economy. c. Identify the basic characteristics of (1) monopoly, (2) oligopoly, (3) monopolistic competition, and (4) pure competition.

Competition, Market Structures, and the Role of Government

Market Structures What is the primary aim/goal of businesses? To maximize profits What is competition? Striving against others to reach an objective

What are market structures? We are NOT talking about economic systems like command, market, mixed or traditional. All of the market structures that we will learn about in this standard can be found within the American mixed economy.

4 Types of Market Structures Pure/Perfect Competition: a market with fair competition and no government or non-economic factors dictating price, supply or demand. Large number of buyers and sellers Identical products (think substitutes) Well informed buyers and sellers No barriers to entering market More Competition Less Competition

Pure/Perfect Competition Many buyer/sellers + Identical Products

Monopolistic Competition Meets all condition of perfect competition except for having identical products. Characterized by product differentiation Monopolistic competitors use non-price competition Advertising, giveaways, or other promotions More Competition Less Competition

Monopolistic Competition Gap Levis Lucky Same as pure competition except for product differentiation

Monopolistic Competition Are these shampoos/conditioners different? Pantene $14.50 Frederic Fekkai $54

Monopolistic Competition Are these mascaras different? Maybelline Sisley $4 $43

Oligopoly A few very large sellers dominate the industry Oligopolists act interdependently by lowering prices soon after the first seller announces a price cut or offering new products after another firm does E.g., car companies all offering 0% financing or introducing a similar model after a competitor does Engage in price wars Collusion: formally agree to set prices (illegal; doesn’t happen often) More Competition Less Competition

Oligopoly Ipod Zune

Oligopoly Few producers control supply and price

Coca-Cola Classic Coca-Cola classic Sprite Dasani Barq's Dannon Nestea Rockstar Evian Fanta Fresca Minute Maid Mr. Pibb Powerade Seagrams Ginger Ale & Mixers TAB

Pepsi-co Aquafina Pepsi Mountain Dew Sierra Mist Sobe Lipton Brisk Tea MUG Root Beer Slice Gatorade Dole Juice Tropicana

Cadbury Schweppes 7 Up Canada Dry Clamato Dr Pepper Hawaiian Punch Mott's Orangina Snapple

Toyota Toyota Scion Lexus

Chrysler Chrysler Jeep Dodge

General Motors Chevrolet Buick Pontiac GMC Saturn Hummer SAAB Cadillac

Monopoly Only one seller of a particular product Few monopolies in our economy

Monopoly One seller dominates the market with no close substitutes Barriers prevent other firms from entering market Monopoly is able to dictate price & output More Competition Less Competition

Monopoly Natural Monopoly - efficient production by a single supplier

Monopoly Geographic Monopoly - small town or isolated location

Monopoly Technological Monopoly - new invention Patent: exclusive right for 17 years Segway

Monopoly Technological Monopoly Copyright: lifetime + 50 years This telecast is copyrighted by the NFL for the private use of our audience. Any other use of this telecast or of any pictures, descriptions, or accounts of the game without the NFL’s consent, is prohibited.

Monopoly Government Monopoly - government owned businesses But is this a true monopoly? Does USPS have competition?

SSEMI4 The student will explain the organization and role of business and analyze the four types of market structures in the U.S. economy. a. Compare and contrast three forms of business organization—sole proprietorship, partnership, and corporation.

Sole Proprietorships Sole proprietorships are easy to start, but owners have unlimited liability. Sole proprietorships are businesses owned and run by a single person who has the rights to all profits and unlimited liability for all debts of the firm The most common form of business organization in the U.S. is the sole proprietorship or proprietorship.

Sole Proprietorship-Advantages The easiest form of business to start— few requirements Decisions do not require approval from “higher ups.” Keep all profits Does not pay separate business income taxes; business is not a separate entity Easy to get out of business Psychological factor of being own boss

Sole Proprietorship-Disadvantages Business owner is personally and fully responsible for all losses and debts of the business Difficult to raise capital Size and efficiency Owner has unlimited liability. May hire several employees to stay open Cost of carrying minimum inventory Often has limited managerial skills Larger employers can offer more fringe benefits. Limited life of business Difficult to attract qualified employees situation in which a firm ceases to exist when an owner dies, quits, or sells the business

Partnerships Unincorporated business owned and operated by two or more people who share the profits and responsibility for debts In a partnership, each partner fully shares responsibility for the operation of the business and all profits or losses. Partnerships are the least numerous form of business organization in the United States. A partnership has many of the same advantages and disadvantages of a sole proprietor.

Partnerships—Two Types General partnership: form of partnership where all partners are equally responsible for management and debts Limited partnership: form of partnership where one or more partners are not active in the daily running of the business and have limited responsibility for debts

Partnerships--Advantages Ease of startup Formal legal papers called articles of partnership are usually written. Ease of management/varied expertise Lack of special taxes Easier to attract capital than a proprietorship Easier to find good employees than a proprietorship More efficient operations that come with increased size

Partnerships--Disadvantages In a general partnership, each partner is responsible for acts of all partners. In a limited partnership, limited partner loses original investment. General partners must make up the rest of the loss. Limited life Potential for conflict between partners

Corporations Corporations are one of the most important forms of business and can easily raise large amounts of financial capital. A corporation is a formal, legal entity all its own. Individuals who wish to incorporate must file with the national government and state where the business will have its headquarters.

Corporations-Advantages Ease of raising capital—sell more stock or issue bonds The amount of money borrowed on a bond is called the principal. Corporations pay interest on this borrowed money.

Corporations-Advantages Owners have limited liability Directors can hire professional managers to run daily operations. Unlimited life Ease of transferring ownership

Corporations-Disadvantages Detailed records need to be kept for payment of taxes. Double taxation of corporate profits Difficulty and expense to get a corporate charter

Corporations-Disadvantages Owners or shareholders have little voice in business operations. Subject to more government regulations Publicly held corporations must register with the federal Securities and Exchange Commission, established in 1934, to regulate the sale of stock.