Competition and Market Structures

Pure competition Market structure in which a large number of firms all produce the same product and no single seller controls the supply or prices; also called perfect competition

commodity A product, such as petroleum or milk that is considered the same no matter who produces or sells it

Any factor that makes it difficult for a new firm to enter a market Barrier to entry Any factor that makes it difficult for a new firm to enter a market

Imperfect competition A market that fails to meet the conditions of pure competition

Start-up cost The expenses a new business must pay before it can begin to produce and sell goods

A market in which a single seller dominates monopoly A market in which a single seller dominates

Economies of scale Characteristics that cause a producer’s average cost per unit to drop as production rises

Natural monopoly A market, that runs most efficiently when one large firm provides all of the production

A monopoly created by the government Government monopoly A monopoly created by the government

patent A government license that gives the inventor of a new product the exclusive right to produce it and sell it

franchise A contract that gives a single firm the right to sell its goods within an exclusive market

Price administration The division of consumers into groups based on how much they will pay for a good

The ability of a company to control prices and total market output Market power The ability of a company to control prices and total market output

Monopolistic competition A market structure in which many companies sell products that are similar but not identical

Making a product different from. Other similar products differentiation Making a product different from. Other similar products

Non-price competition A way to attract through style, service, or locations, rather than a lower price

A market in which few large firms dominate the market oligopoly A market in which few large firms dominate the market

Price war A series of competitive cuts that lowers the market price below the cost of production

collusion An illegal agreement among firms to to divide the markets, set prices, or limit production

cartel A formal organization of producers that agree to coordinate price and production

Predatory pricing Selling a product below cost for a short period of time to drive competitors out of the market

Laws that encourage competition in the marketplace Anti-trust Laws Laws that encourage competition in the marketplace

When two or more companies join to form a single firm merger When two or more companies join to form a single firm

The removal of government control over a market deregulation The removal of government control over a market