Other Market Structures

Monopolistic Competition a market where there are many firms selling similar but not identical products to many buyers. Closest to Perfect Competition Example: Airline industry. Whether it is Sprint, United, or NW, it is really providing the same function or utility. What is different? Seats, price, experience, marketing, etc. Other examples: coffee shops (Starbucks v. Biggby, gas stations, book stores, clothing stores, etc.)

Similar but Different Products Characteristics of Monopolistic Competition Many Sellers & Many Buyers Allows for meaningful competition. Sellers decide what to produce, how much and what price to charge. Similar but Different Products Companies try to gain power by making a distinctive product or by convincing consumers that their product is different/better than the competition. Example: Brand names Hollister shirt v. Meijer shirt.

Nonprice competition Product differentiation the attempt to distinguish a product from similar products. Each company’s product is slightly different than another company’s; however, they both serve the same purpose. Example: Clothing, Old Navy v. J. Crew sweaters. Both keep you warm, both are made of wool…but there might be a slight difference in quality, cut, sizing, etc. (and, of course, price.) Nonprice competition Occurs when producers use factors other than price to convince customers to buy their products. Toy given in a kid’s meal at McDonald’s v. Burger King I like a certain type of pen and I am willing to pay more for it.

Freedom to Enter or Exit Market Limited Control of Prices Because products are different, companies can charge different prices…up to a certain point. If prices become too high, consumers can/will substitute brands. Freedom to Enter or Exit Market Generally there are few barriers to enter the market.

Characteristics of an Oligopoly a market where only a few sellers offer a similar product. Less competitive than monopolistic competition. Market where few firms (4 – 5) dominate a large portion of the market (80%). Few Sellers & Many Buyers A few firms dominate the market. It is not a single supplier like a monopoly, but few firms control the market. Example: Breakfast cereal industry is dominated by 4 large firms that control 80% of the market.

More Control over Prices Similar but Different Products Products are different but serve the same function. Pop serves the same function but Coke is different than Sprite More Control over Prices An individual firm does not decide what to do (supply, prices, marketing, labor, etc.) without considering what other firms in the industry will do. If Post cereal decides to lower prices, then the other 3 companies will also reduce prices to remain competitive.

Little Freedom to Enter or Exit Market Start-up costs for a new company can be very high. The well established brands can make competition too difficult. Cereal companies have a deal with supermarkets that guarantee them the best shelf space. Too much of a challenge to compete with an established brand.