Market Structures

DO NOW Get out paper for today’s Cornell notes Topic: Market Structures EQ: How does market structure affect competition & price?

How do market structures affect competition and price? Essential Question: How do market structures affect competition and price? Learning Target: I can identify, explain, and evaluate the various ways markets are structured in our economy. I will show I understand by analyzing cases studies and completing a graphic organizer.

Warm-UP Look at each scenario and decide under which conditions you would prefer to start a new business. Give at least two reasons to justify your selection! Open a frozen yogurt store in a town that has several other successful yogurt stores Begin the first, and only, babysitting service in your area Start a music store in a small town that has just 2 others Create a tennis shoe line that targets teenagers

What is a MARKET STRUCTURE? the organization of a market (specific industry within an economy), based primarily on the DEGREE OF COMPETITION among producers

The 4 Factors that determine Market structure Number of producers Many producers = more competition, higher quality & lower prices Few producers = less competition, lower quality & higher prices

The 4 Factors that determine Market structure 2. Ease of entry How easy or difficult is it to start a business in this market? What are the barriers to entry? High/low/no barriers?

The 4 Factors that determine Market structure 3. Similarity of products How alike or unique are the goods/ services produced? More similar=more competition Unique = no competition

The 4 Factors that determine Market structure 4. Control over prices How much market power do producers in this market have through their control of the supply?)

Make up your own pneumonic device… Never Eat Soggy 4. Cereal

What are the 4 kinds of market structures? Perfect Competition Monopolistic Competition Oligopoly Monopoly

Perfect Competition N - MANY producers E - FEW barriers— Easy to enter the market S - IDENTICAL products (agricultural commodity) C –NO control over prices (only supply & demand determines price) EXAMPLES:

Monopolistic competition N - MANY producers (large, medium, & small companies) E - FEW barriers to entry, relatively low start-up costs S - DIFFERENTIATED products C – SOME control over price through branding/quality

Oligopoly N – FEW producers control the market (top 4 producers > 60%) E – HIGH barriers to entry (high start-up costs, etc.) S – VERY SIMILAR products C – MAJORITY of the control over prices (because the top producers dominate the market)

Oligopoly

Monopoly N – ONE producer--they control the industry/market E – HIGH barriers that limit or prevent other producers from entering. S – UNIQUE product, no substitutes, nothing similar C – Producer has (near) total control over prices— the “PRICE SETTER”

Monopoly Natural monopolies: Legal monopolies: Occur in markets where there is no competition naturally Only become regulated by the federal gov’t once there is a “reason.” Legal monopolies: Allowed by the federal gov’t, but heavily regulated Natural monopolies Legal monopolies

Gallery Walk— Market Structure Analysis Working in groups of 4 you will read the case study for the industry described. Discuss in your groups the details of each study. Complete the organizer, analyzing the market structure that is present in the scenario you are analyzing. When time is up, rotate to the next case study.

LEAST CONTROL OF PRODUCERS Exit Ticket On the exit ticket given to you place each market structure on the spectrum shown. LEAST CONTROL OF PRODUCERS OVER PRICE GREATEST CONTROL OF PRODUCERS OVER PRICE