Chapter 7 Section 3

Markets can be grouped into 4 different basic structures : 1)Perfect competition 2) Monopolistic Competition 3) Oligopoly 4)Monopoly

*The two extremes in the range of market structures are Perfect Competition & Monopolies. *The middle ground is provided by monopolistic competition and oligopolies. Monopolistic Competition –a market structure in which many companies sell products that are similar but not identical .

The difference between Perfect Competition and Monopolistic Competition arise because Monopolistic Competitive firms sell goods that are similar enough to be substituted for one another but not identical .

Monopolistic Competition develops under four conditions : Many Firms Few Artificial Barriers to Entry Slight Control Over Price Differentiated Products

*2 to 4 firms that produce 70% or more of sales in a market -Oligopoly-Describes a market dominated by a few large profitable firms. *2 to 4 firms that produce 70% or more of sales in a market

-An oligopoly can form when significant barriers to entry keep new companies from entering the market to compete with existing firms. -Sometime these barriers are created by a system of government licenses or patents. -High start-up costs, such as expensive machinery or a large advertising campaign, can scare firms away from the market.

-Some oligopolies occur because of economies of scale -Some oligopolies occur because of economies of scale. When a firm experiences economies of scale, the average cost of production decreases as output increases. -In a market with a monopoly, only one company can produce enough goods to earn a significant profit. With oligopolies, perhaps 3 or 4 companies can reach a profitable level of output before the market gets crowded.

Nonprice Competition takes several different forms : -Firms try not to compete on price alone . The alternative is Nonprice Competition , or competition through ways other than lower prices. Nonprice Competition takes several different forms : Physical Characteristics Location Service Level Advertising , Image or Status .

What are the 4 conditions of Monopolistic Competition?

How do economist determine whether a market is an oligopoly ?

Give 3 examples of Nonprice competition .

How would price fixing and collusion help producers ?

Understand how firms compete without market set input .

Explain how firms compete without lowering prices .

Define oligopoly & 3 ways for firms in an oligopoly to control a market .

Would you describe the following markets as monopolistic competition or oligopoly ? Refrigerators Video games Gourmet Ice Cream Sunscreen Cable Sports Channels

Why do firms in monopolistic competition have some control over prices ?