M ARKET S TRUCTURES Mr. Duggan Economics

P ERFECT C OMPETITION Four Conditions for Perfect Competition 1. Many buyers and sellers participate in the market. 2. Sellers offer identical products (Commodity) 3. Buyers and sellers are well informed about products 4. Sellers are able to enter and exit the market freely

C OMMODITY

B ARRIERS TO ENTRY TO THE MARKET Not being able to enter the market leads to imperfect competition High start up costs and a high know how of technology leads to imperfect competition

M ONOPOLY Forms when barriers prevent firms from entering the market that has a single supplier. Monopolies take advantage of the market and charge high prices, So America has outlawed their practices

F ORMING A M ONOPOLY Economies of sale- producers cost drops as production rises

N ATURAL M ONOPOLIES When one large firm enters the market, competition will drive down the market price and decrease the quantity each firm can sell. 1 or 2 of the firms cant cover cost and will go out of business. Example public water supply

Technology ends natural monopolies Ex. Phone lines

G OVERNMENT M ONOPOLIES Government issued Patent- gives a company exclusive rights to sell a new good or service for a specific time Ex. New drug Franchise - a contract issued that gives a single firm the right to sell Ex. Food sales at a school License - right to operate a business Ex. Radio or T.V. Station

P RICE D ISCRIMINATION Divide consumers into two different groups and charge two different prices Ex. Discounted airline fares Market power is the ability to control prices and total output Limits of Price Discrimination 1. some market power 2. Distinct customer groups 3. people cant resell good or service

M ONOPOLISTIC C OMPETITION Competitive firms sell goods that are similar enough to be substituted for one another but are not identical Ex. jeans

4 CONDITIONS OF M ONOPOLISTIC C OMPETITION 1. Many firms 2. Few artificial barriers to entry 3. Slight control over price 4. Differentiated products (profit from different)

N ON - PRICE C OMPETITION 1. Physical characteristics 2. Location 3. Service Level 4. Advertising, image, or status

P RICE, O UTPUT AND P ROFITS Prices - high costs firms have power to raise prices Output- is medium, meaning not an unlimited supply Profit- earn just enough to cover cost and salaries

O LIGOPOLY Market dominated by a few large, profitable firms Set prices high and output low Ex. airliners

Many barriers to entry Work together to form a monopoly Cause government headaches Price war- oligopolies disagreements to win business Collusion- agreements by oligopolies to set price Price fixing- caused by collusion Cartels- agreement by a formal organization of produces to fix prices and production ( don’t last long, fall cause of greed over price)