1 Market Structures Unit Three Business in the Free Enterprise System

2 Major Benefits of Competition People are given choices People are given choices Keeps prices down Keeps prices down Encourages producers to improve existing products and develop new ones Encourages producers to improve existing products and develop new ones

3 1) Perfect (pure) competition - a market structure in which buyers and sellers each compete directly and completely under the laws of supply and demand. Highly Competitive Markets Perfect competition exists when four conditions are present: 1.Many buyers and sellers act independently 2.Sellers offer identical products 3.Buyers are well informed about products. 4.Sellers can enter or exit the market easily.

4 2) Monopolistic competition - a market structure in which producers sell different rather than identical products. Highly Competitive Markets

5 Sellers differentiate their products under monopolistic competition through nonprice competition, such as advertising. Highly Competitive Markets Product Differentiation – Market structure in which sellers offer slightly different, rather than identical, products

6 3) Oligopoly - Structure of an oligopoly: only a few large sellers (usually 3 or 4 large companies), and they control most of the production of a product only a few large sellers (usually 3 or 4 large companies), and they control most of the production of a product sellers offer identical or similar products sellers offer identical or similar products new sellers find market entry difficult new sellers find market entry difficult Imperfectly Competitive Markets

7 4) Monopoly - Characteristics one seller one seller no close substitute goods no close substitute goods difficult to enter market difficult to enter market Imperfectly Competitive Markets

8 Types of monopolies: a) natural monopolies— 1 large seller produces a good or service most efficiently b) geographic monopolies—isolated geographic location attracts only one seller c) technological monopolies—one producer owns the technology that created the market d) government monopolies—government is the sole seller of a product Imperfectly Competitive Markets

9 Laissez-faire relationship between the federal government and business Before the 1880s, the U.S. government did not interfere with business or the marketplace. Before the 1880s, the U.S. government did not interfere with business or the marketplace. Market Regulation

10 Purpose of early antitrust legislation: to monitor and regulate big business to monitor and regulate big business to prevent formation of monopolies to prevent formation of monopolies to break up existing monopolies to break up existing monopolies Market Regulation

11 Government enforcement of antitrust legislation: broke up Standard Oil Company of Ohio in 1911 and AT&T in 1982 with the Sherman Antitrust Act broke up Standard Oil Company of Ohio in 1911 and AT&T in 1982 with the Sherman Antitrust Act created watchdog groups, such as the Interstate Commerce Commission and the Federal Trade Commission created watchdog groups, such as the Interstate Commerce Commission and the Federal Trade Commission strengthened antitrust legislation with acts such as the Celler-Kefauver Act of 1950, the Antitrust Procedures and Penalties Act of 1975, and the Parens Patriae Act of 1976 strengthened antitrust legislation with acts such as the Celler-Kefauver Act of 1950, the Antitrust Procedures and Penalties Act of 1975, and the Parens Patriae Act of 1976 Market Regulation