Turn to your partner and tell them three words you think of when you hear the word COMPETITION

Competition and Markets Every business firm operates in a MARKET STRUCTURE

Copy this chart on a full sheet of paper: Market Structure # of Sellers Types of Products Barriers to Entry Control Over Price Examples Perfect Competition Monopoly Monopolistic Competition Oligopoly

Perfect Competition Many buyers and many sellers The market is perfectly transparent

Perfect Competition All firms sell identical products.

Perfect Competition It’s easy to get into and out of the market.

Perfect Competition price takersSellers are price takers. They must sell their product at the equilibrium price and not one penny more

Perfect Competition A market may not satisfy one or more of the four conditions and still be perfectly competitive What determines whether a market is perfectly competitive or not is if firms (sellers) in the market are price takers.

Perfect Competition Wheat Market, Corn Market, Stock Market, other agricultural markets

Critical Thinking Some of the 200 firms in Market X, a perfectly competitive market, are incurring losses. How will these losses influence…. –entrance/exit to the market? –the supply of the good produced in the market? –the price of the good? Think of a flow chart….

How can a seller determine whether or not they are a price taker? Can he/she sell any of the product for even one cent more than equilibrium price?Can he/she sell any of the product for even one cent more than equilibrium price?

Turn to your partner and tell them three words you think of when you hear the word MONOPOLY

Monopoly there is 1 seller.

Monopoly The product sold is UNIQUE – there are no close substitutes

Monopoly Extremely high barriers to entry…it’s hard to get into a monopoly market. Legal Barriers –public franchise –patents –copyrights Extremely Low Per-Unit Costs –a natural monopoly Exclusive ownership of an essential resource

Monopoly Monopolists are price searchers. They can sell some of their product at various prices. The demand curve will determine how much they can sell and at what price. Price will be determined based upon their decision on how much to produce.

Monopoly US postal service 1 st class mail Vista Irrigation District Cox Cable historically: –Alcoa –DeBeers –Standard Oil –AT&T

Monopolistic Competition shares characteristics of both perfectly competitive and monopoly markets.

Monopolistic Competition there are many buyers and sellers

Monopolistic Competition Firms sell slightly differentiated products

Monopolistic Competition Easy entry and exit from the market

Monopolistic Competition Price Searchers They can sell some of their products at various prices,

Monopolistic Competition Burgers Clothing Coffee Houses Gas Stations Cosmetics

Competitors and Monopoly Many businesses would like to become a monopoly –they advertise perceived differences Competition depends on two factors: 1.How close to unique the product is 2.How easy it is for sellers to enter the market

Oligopoly Name five American car manufacturers

Oligopoly There are few sellers. A few sellers account for a large percentage of sales

Oligopoly Firms produce identical or slightly differentiated products.

Oligopoly Entry into the market is difficult. low per-unit costs patents control of resources

Oligopoly Price Searchers slightly differentiated products difficult to get in the market the few sellers may be able to control price through agreement or cooperative action –cartel agreements (illegal)

Oligopoly cars cereal Airlines Entertainment

Identifying Oligopoly Industries Economist determine whether a market is an oligopoly by looking at the percentage of sales accounted for by the top four firms in the industry –6 major film studios = 90% of revenue 20 th century, Warner Brothers, Paramount, Columbia, Universal, Walt Disney Dreamworks (Viacom bought—owned by Paramount) –2008 became independent again but distributed by Disney Leading Indies: Lionsgate, Summit Entertainment, MGM (former Biggie!) –4 music companies = 80% of revenue Sony, EMI, Universal, Warner –6 book publishers –3 television networks ( ) ABC/Disney CBS NBC Universal 2 added since –Time Warner –News Corporation (FOX) –Food processors: Kraft, Nestle, PepsiCo

Review Firm A is a perfectly competitive firm. Why can’t it sell its product for one penny higher than equilibrium price? Buyers would know that they could buy that identical product for the cheaper price. Why would they pay one penny more?Buyers would know that they could buy that identical product for the cheaper price. Why would they pay one penny more?

Review To become an attorney, a lawyer must pass the bar examination. Is the bar examination a barrier to entry in the law market? YesYes

Review Firms in a monopolistic competitive market produce slightly differentiated products. How might these products be differentiated? Besides differences in product, they could be sold in different locations, by different people, in a store, online or by phone. They can be bundled with different services or sales conditions.Besides differences in product, they could be sold in different locations, by different people, in a store, online or by phone. They can be bundled with different services or sales conditions.

Review How can profits be “competed away” in a perfectly competitive market? It’s an easy market to enter. When businesses see the high profits, they enter the market. More supply lowers the price…It’s an easy market to enter. When businesses see the high profits, they enter the market. More supply lowers the price…

Review What are the two major factors that decide how much competition a firm faces? How close to unique is the product?How close to unique is the product? How easy is it to get into the market for this product?How easy is it to get into the market for this product?

Homework MyVote California Research your assigned topic. –Be prepared to develop a short 2-3 minute presentation with your group outlining the important issues Company Analysis Sheets (Stock Market Part I) due Friday, October 22.

“Stupid is as stupid does.” As you watch the clip from “Forest Gump,” note the process related to Bubba Gump Shrimp’s position in the shrimping market. 1.Before the hurricane, how does the shrimping industry resemble a perfectly competitive market? 2.How does the hurricane change the market price and quantity of shrimp? (Use supply & demand graphs to illustrate.) 3.How did the hurricane create a monopoly for Bubba Gump Shrimp? Use the characteristics of a monopoly to support your answer. 4.Do you think Forest can maintain his monopoly status over time? (In other words, are there barriers to entry?) Explain.