Market Structures The different types of markets and the way in which businesses compete

Four Market Structures Perfect Competition Perfect Competition Monopolistic Competition Monopolistic Competition Oligopoly Oligopoly Monopoly Monopoly

Terms to understand Number of firms – How many businesses compete in the market? Number of firms – How many businesses compete in the market? Barrier to entry – any factor that makes it difficult for a new firm to enter the market Barrier to entry – any factor that makes it difficult for a new firm to enter the market Variety of goods – How different are the products? Variety of goods – How different are the products? Control over Prices – How much control do the firms have over their prices? Control over Prices – How much control do the firms have over their prices?

Perfect Competition (Pure Competition) A market with a large number of firms all producing essentially the same product. A market with a large number of firms all producing essentially the same product. Assumptions: Assumptions: The Market is in equilibrium The Market is in equilibrium All firms sell the same product for the same price. All firms sell the same product for the same price. No single firm can influence prices. No single firm can influence prices. They each have such a small share of the market. They each have such a small share of the market.

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

Monopoly When there is one company or firm that supplies the market with a good or service. When there is one company or firm that supplies the market with a good or service. Barriers to entry limit other firms from entering the market. Barriers to entry limit other firms from entering the market. Barriers are the principle condition for monopolies to exist. Barriers are the principle condition for monopolies to exist. There are many buyers. There are many buyers.

Monopolistic Competition Where many companies compete in an open market to sell products that are similar but not identical. Where many companies compete in an open market to sell products that are similar but not identical. Each firm holds a monopoly over its own particular product. Each firm holds a monopoly over its own particular product. A modified version of perfect competition with minor differences in products. A modified version of perfect competition with minor differences in products.

Conditions of Monopolistic Competition 1. Many firms. 1. Many firms. Lower start up costs allow new firms to join the market. Lower start up costs allow new firms to join the market. 2. Few artificial barriers to entry. 2. Few artificial barriers to entry. No patents, licenses,etc… No patents, licenses,etc… 3. Slight control over price. 3. Slight control over price. 4. Differentiated Products. 4. Differentiated Products.

Oligopoly A market dominated by a few large, profitable firms. A market dominated by a few large, profitable firms. If the four largest firms produce at least 70 to 80 percent of the output. If the four largest firms produce at least 70 to 80 percent of the output.

Which Market Structure? 1. Televisions 2. Bottle Water 3. Cell Phone Carriers 4. Grapes 5. Computers 6. Paperclips 7. City water 8. Video Game Systems 9. Corn 10. Public schools