Pure Competition Market Structure Continuum Four Market Structures

Pure Monopoly Market Structure Continuum PureCompetition Four Market Structures

Monopolistic Competition Market Structure Continuum PureCompetition PureMonopoly MonopolisticCompetition Four Market Structures

Oligopoly Market Structure Continuum PureCompetition PureMonopoly MonopolisticCompetition Four Market Structures

Oligopoly Market Structure Continuum PureCompetition PureMonopoly MonopolisticCompetition Four Market Structures

Market Structure Continuum PureCompetition PureMonopoly MonopolisticCompetition Oligopoly Characteristics of Pure Competition very large numbers standardized product price-takers easy entry & exit

Pure Monopoly Characteristics: Single seller No close substitutes Price-maker Blocked entry

Pure Monopoly Examples –public utilities

Pure Monopoly Examples –public utilities –professional sports teams (Maple Leafs)

Barriers to Entry Economies of Scale (Microsoft, aircraft) Legal Barriers to Entry: Patents (drugs)& Licenses (CRTC) Ownership or Control of Essential Resources Pricing & Other Strategic Barriers to Entry

Monopolistic Competition & Oligopoly

Monopolistic Competition Market Structure Continuum PureCompetition PureMonopoly MonopolisticCompetition Four Market Structures

Characteristics of Monopolistic Competition Relatively Large Number of Sellers –Small Market Shares –No Collusion –Independent Actions (little interdependence)

Characteristics of Monopolistic Competition Differentiated Products –product attributes (physical, qualitative) –service –location (small convenience stores) –brand names & packaging (Bayer vs. Anacin) –some control over price

Characteristics of Monopolistic Competition Relatively Large Number of Sellers Differentiated Products Easy Entry & Exit Advertising

Oligopoly Market Structure Continuum PureCompetition PureMonopoly MonopolisticCompetition Four Market Structures Oligopoly

The Characteristics of Oligopoly A Few Large Producers Homogeneous or Differentiated Products Control Over Price, but Mutual Interdependence Entry Barriers –economies of scale –high capital costs –ownership of raw materials Mergers

ECONOMICS IN ACTION And, according to affidavits submitted to a Canadian court, top executives at Hershey, Mars, and Nestle met secretly in coffee shops, in restaurants, and at conventions to set prices. The Prisoners’ Dilemma When the decisions of two or more firms significantly affect each others’ profits, they are in a situation of interdependence. The study of behavior in situations of interdependence is known as game theory. The reward received by a player in a game—such as the profit earned by an oligopolist—is that player’s payoff. A payoff matrix shows how the payoff to each of the participants in a two-player game depends on the actions of both. Such a matrix helps us analyze interdependence. 18

The Prisoners’ Dilemma Don’t confess Confess Louise Louise gets 2-year sentence. Louise gets 5-year sentence. Thelma gets 20-year sentence. Thelma gets 5-year sentence. Louise gets 15-year sentence. Louise gets 20-year sentence. Thelma gets 15-year sentence. Thelma gets 2-year sentence. Thelma 19

Four Market Models LO1 Characteristics of the Four Basic Market Models Characteristic Pure Competition Monopolistic CompetitionOligopolyMonopoly Number of firmsA very large number ManyFewOne Type of productStandardizedDifferentiatedStandardized or differentiated Unique; no close subs. Control over price NoneSome, but within rather narrow limits Limited by mutual inter-dependence; considerable with collusion Considerable Conditions of entry Very easy, no obstacles Relatively easySignificant obstacles Blocked Nonprice Competition NoneConsiderable emphasis on advertising, brand names, trademarks Typically a great deal, particularly with product differentiation Mostly public relation advertising ExamplesAgricultureRetail trade, dresses, shoes Steel, auto, farm implements Local utilities 8-20