Unit #4: Market Structures Market Characteristics.

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Presentation transcript:

Unit #4: Market Structures Market Characteristics

Market Structures Market Structure is the way an industry is organized: –Auto Industry versus the restaurant industry

Market Characteristics Market characteristics of an industry determine the pricing power of a business 4 market characteristics: –# of Firms –Type of Product –Ease of entering or exiting industry –Amount of Information Determine pricing control

Number of Firms The number of competitors greatly influences how a firm behaves Business # Firms 1) Restaurants Many 2) Auto Companies Several 3) GoogleAlmost none

Type of Product Sold Is your product unique? (are there substitutes?) Wheat Farmers Porsche

Ease of Entry/Exit Very critical feature of a market structure Adam Smith assumed ease of entry for capitalism to be efficient…

Amount of Information Do buyers & sellers have access to market information? The internet has dramatically increased the flow of information

Degree of Price Control Price control determined by first 4 market characteristics Price Taker: firm has little/no control over price Price Setter: firm has some control over price

Perfect Competition Monopolistic Competition Oligopoly Monopoly “I hate Monopolies” Perfect Competition is Adam Smith’s dream! Most competitive Least competitive 4 Market Structures