{ Market Structures SSEMI4c- Identify the basic characteristics of the four market structures

 The rivalry among sellers to achieve goals and make the highest profit Competition

  Lower prices   Better products   More innovation Why is competition beneficial for consumers?

  Nature and degree of competition among firms doing business in the same industry Market structure Perfect Competition Monopolistic Competition Oligopoly Monopoly

  A market structure in which a large number of firms all produce the same product.   Large number of buyers and sellers (thousands)   Identical products –   no need for advertising – tomatoes are tomatoes   No control over price. Firms are price takers.   Few barriers to entry, businesses are free to enter into, conduct, or get out of business Perfect Competition Identical

 A market structure in which many companies sell products that are similar but not identical.  Many Firms, but less than perfect competition (100’s)  Products are similar but not identical (fastfood).   Characterized by product differentiation (real or perceived)   Some control over price because products are not exactly the same.   No major barriers to entry. Firms can enter and leave easily. Monopolistic Competition

Which do you prefer?

 The use of advertising, giveaways, or promotional campaigns to convince buyers that the product is somehow better than another brand Non-Price Competition A3bwPY&list=PLxgUkHTvXNoYSV9JR0U djV-YEYaHVYssQ =gFUUybc_M40

  A market structure in which only a few sellers offer similar or identical products.   Few very large sellers dominate the industry (10’s of firms)   ex. AT&T, Verizon, Sprint, etc.   Products can be similar or identical   Some control over price   When one changes price, the others have to decide whether to follow   Significant barrier to entry   High start-up cost   Costly R & D   Control over key resources by a competitor Oligopoly

  Cartels - agreement between competing firms to control prices or exclude entry of a new competitor in a market   Collusion – formal agreement to set specific prices or to otherwise behave in cooperative manner (Ex: OPEC)   Price Leadership – one firm dominates the market and the others follow their lead (increasing or lowering price) Oligopoly – Pricing Models

  A market with only one seller for a particular product   Usually one good or service   Unless regulated by the government, firm has full control over price   Complete barriers to entry (no new competition) Monopoly

  Natural Monopoly – market situation where the costs of production are minimized by having a single firm produce the product   ex. Public utility companies – waste to run multiple electric lines, oil pipeline in Alaska   Utilizes economies of scale – average cost of production falls as the firm gets larger Types of Monopolies

  Geographic Monopoly – based on absence of other sellers in a certain geographic area (gas station, drugstore in small town) Types of Monopoly

  Technological Monopoly – based on ownership or control of a manufacturing method, process, or other scientific advance (certain pharmaceutical drugs)   Patent – exclusive right to manufacture, use, sell invention – usually good for 20 years   Copyright – authors, art – good for their lifetime plus 50 years Types of Monopoly

  Government Monopoly - monopoly owned and operated by the government (military, water and sewage) Types of Monopolies