PURE MONOPOLY, MOPOLISTIC COMPETITION and OLIGOPOLY MARITES DOMINGO-PAQUIBULAN Reporter

12-2 Introduction to Pure Monopoly Pure monopoly Single seller – a sole producer No close substitutes – unique product Price maker – control over price Blocked entry – strong barriers to entry Non-price competition – ( like better service, product guarantees, free home delivery, more attractive packaging, better locations, and advertising)

12-3 Barriers to Entry Barriers to entry are factors that prevent firms from entering the industry Legal barriers to entry like patents and licenses Ownership or control of essential resources Pricing and other strategic barriers

12-4 Economies of Scale 0 Average total cost Quantity $ ATC

12-5 Economic effect of monopoly Income transfer The effect of the monopoly power is to transfer income from the consumers to the business owners.

12-6 Misconceptions Concerning Monopoly Pricing Not the highest price Total profit, not per unit profit Possibility of losses

12-7 Price Discrimination & Condition of Success Price Discrimination Charging different buyers’ different prices Different prices are not based on cost differences Condition of Success Monopoly power Market segregation

MOPOLISTIC COMPETITION

12-9 Monopolistic Competition A blend of competition and monopoly; many sellers offer heterogeneous or differentiated products, similar but not identical and satisfy the same basic need; changes in product characteristics to increase appeal using brand, flavor, consistency, and packaging as means to attract customers;

12-10 Monopolistic Competition there is free entry and exit in the market that enables the existence of many sellers; it is similar to a monopoly in that the firm can determine characteristics of product and has some control over price and quantity; and. non-price competition like advertising

12-11 Efficiency Outcomes The firm can either sell more by charging a lower price or it can even raise its price without losing all of its customers because it has the capacity of developing loyalty among its customers. Hence, firms in this market structure are price setters.

OLIGOPOLY

12-13 What is oligopoly? An oligopoly is a market dominated by a smaller number of strategically interacting firms, from the Greek “oligos” meaning few. Few sellers account for most of or total production since barriers to free entry make it difficult for new firms to enter.

12-14 Categories of oligopoly Homogeneous oligopoly – e.g. steel and aluminum market Differentiated oligopoly – e.g. market for automobiles, electronics equipment and breakfast cereal

12-15 Characteristics of Oligopoly a few large producers; action of each firm affects other firms; interdependence among firms; entry barriers; and mergers

12-16 Overt Collusion A cartel is a group of firms or nations that collude Formally agreeing to the price Sets output levels for members Collusion is illegal in the United States OPEC (Organizational of Petroleum Exporting Countries)

12-17 OPEC (Organizational of Petroleum Exporting Countries) e.g. Producers of oil from all around the world can manage to raise prices by agreeing with each other on what prices to charge the consumers. Thus, countries that use a lot of oil have no choice but to buy these producers at high prices.

Thank you for listening! END!!!

PURE MONOPOLY, MOPOLISTIC COMPETITION and OLIGOPOLY MARITES DOMINGO-PAQUIBULAN Reporter

12-20 DEFINITION and its characteristics PURE MONOPOLYMONOPOLISTIC COMPETITION OLIGOPOLY A pure monopoly exists when a single firm that sells in the market has no close substitutes Monopolistic competition is wherein products are differentiated and entry and exit are easy. An oligopoly a few large producers, few sellers and production.

12-21 EXAMPLES PURE MONOPOLYMONOPOLISTIC COMPETITION OLIGOPOLY Meralco Electric Company Maynilad- water utilities Microsoft (Windows OS) Telephone companies Satellite radio, etc. grocery stores hair salons gas stations video rental stores and restaurants, etc. -Homogeneous oligopoly – e.g. steel and aluminum market -Differentiated oligopoly – e.g. market for automobiles, electronics equipment and breakfast cereal

12-22 BARRIERS TO ENTRY PURE MONOPOLYMONOPOLISTIC COMPETITION OLIGOPOLY strong barriers to entry, like government restrictions, patents, licenses, ownership or control of resources and pricing there is free entry and exit in the market that enables the existence of many sellers barriers to free entry make it difficult for new firms to enter.

12-23 PRICE MAKER PURE MONOPOLYMONOPOLISTIC COMPETITION OLIGOPOLY Monopoly power (pricing power) – ability of a firm to set its own price this market are given room to set different prices by their product differ product differences control over price is limited – interdepen dence among firms

12-24 PRICE AND OUTPUT DETERMINATION PURE MONOPOLYMONOPOLISTIC COMPETITION OLIGOPOLY -determines its output level, it also determines its price; it thus a price setter. -determines its price, it also determines its output level that will enable it to maximize its profits. -the firm can determine characteristics of product and has some control over price and quantity Control over price is limited because there are just a few sellers in the market and rivals may respond in a way that would be damaging to the firm that just changed the price.

12-25 EFFICIENCY OUTCOMES PURE MONOPOLY MONOPOLISTIC COMPETITION OLIGOPOLY -interested in total profit, not per unit profit The firm can either sell more by charging a lower price or it can even raise its price without losing all of its customers because it has the capacity of developing loyalty among its customers. Cooperative behavior in oligopoly usually takes the form of price-fixing or output-setting agreements

12-26 PURE MONOPOLY -Microsoft charged higher prices for its Windows operating system to computer manufacturers -Professional sports leagues control player contracts and leases on major city stadiums. -Radio and TV stations and taxi companies are examples of government granting licenses where only one or a few firms are allowed to offer the service.

12-27 MONOPOLISTIC COMPETITION -When we shop for clothes, we look for those that are different and not mass-produced, in case we wear exactly the same shirt as other people. -A successful executive, who is shopping for a car, may choose to buy from Toyota, Honda, Mercedes- Benz or Volkswagen. If he wants a Toyota car, he has a variety of choices such as Wigo, Vios, Altis, Inova, and Fortuner. We can differentiate one car from the other not only by brand name but also by the model, the style, and the additional convenience.

12-28 OLIGOPOLY Producers of oil from all around the world can manage to raise prices by agreeing with each other on what prices to charge the consumers. Thus, countries that use a lot of oil have no choice but to buy these producers at high prices.

12-29 What industry are you in? “Dreams are free, so why limit what you are aspiring for? But dreaming is not enough. One needs to put in enough energy and input.” -Tony Tan-Caktiong Founder, Jollibee Foods Corporation

Thank you for listening! END!!!

12-31 EXAMPLES PURE MONOPOLYMONOPOLISTIC COMPETITION OLIG OPO LY -Radio and TV stations and taxi companies are examples of government granting licenses where only one or a few firms are allowed to offer the service. -A successful executive, who is shopping for a car, may choose to buy from Toyota, Honda, Mercedes-Benz or Volkswagen. If he wants a Toyota car, he has a variety of choices such as Wigo, Vios, Altis, Inova, and Fortuner. We can differentiate one car from the other not only by brand name but also by the model, the style, and the additional convenience.

12-32 EXAMPLES PURE MONOPOLYMONOPOLISTIC COMPETITION OLIGOPOLY -Microsoft charged higher prices for its Windows operating system to computer manufacturers -Professional sports leagues control player contracts and leases on major city stadiums. -When we shop for clothes, we look for those that are different and not mass- produced, in case we wear exactly the same shirt as other people. Producers of oil from all around the world can manage to raise prices by agreeing with each other on what prices to charge the consumers. Thus, countries that use a lot of oil have no choice but to buy these producers at high prices.