Market Models

Market Structure Continuum Four Market Models Pure competition Pure monopoly Monopolistic competition Oligopoly Imperfect Competition Pure Competition Monopolistic Competition Pure Monopoly Oligopoly Market Structure Continuum 9-2

Four Market Structures Perfect Competition Monopolistic Competition Monopoly Oligopoly Imperfect Competition Characteristics of Perfect Competition: Many small firms Identical products (perfect substitutes) Low Barriers- Easy for firms to enter and exit the industry Seller has no need to advertise Firms are “Price Takers” The seller has NO control over price. Copyright ACDC Leadership 2015

Perfect Competition LRATC Example: Agriculture Output

Four Market Structures Perfect Competition Monopolistic Competition Monopoly Oligopoly Characteristics of Monopoly: One large firm (the firm is the market) Unique product (no close substitutes) High Barriers- Firms cannot enter the industry Monopolies are “Price Makers” Copyright ACDC Leadership 2015

Pure Monopoly LRATC Examples: Allegheny Power Monsanto

Barriers to Entry Types of Barriers to Entry 1. Economies of Scale A monopoly wouldn’t last long if there were not high barriers to keep other firms from entering. Types of Barriers to Entry 1. Economies of Scale Ex: There is only one electric company because they are the only ones that can make electricity ay the lowest cost. This is a “natural monopoly” - Other Examples? 2. Superior Technology – Examples? 3. Geography or Ownership of Raw Materials – Examples? 4. Government Created Barriers The government issues patents to protect inventors and forbids others from using their invention – Examples? Copyright ACDC Leadership 2015

Four Market Structures Characteristics of Oligopolies: Perfect Competition Monopolistic Competition Monopoly Oligopoly Characteristics of Oligopolies: A Few Large Producers (Less than 10) Identical or Differentiated Products High Barriers to Entry Control Over Price (Price Maker) Mutual Interdependence Firms must worry about the decisions of their competitors and use strategy Copyright ACDC Leadership 2015

Oligopoly LRATC Examples: Cell Service Cars

Four Market Structures Perfect Competition Monopolistic Competition Monopoly Oligopoly Characteristics of Monop. Comp.: Relatively Large Number of Sellers Differentiated Products Some control over price Low Barriers- easy for firms to enter A lot of non-price competition (Advertising) Copyright ACDC Leadership 2015

Monopolistic Competition LRATC Examples: Restaurants Clothing Stores (as well as most retail…)