Market Structures The nature and degree of competition between firms operating in the same industry.

INDUSTRY (Fast Food- type of industry) FIRM (NAME OF BUSINESS) FIRM (McDonald’s) FIRM (NAME OF BUSINESS) STORE (LOCATON OF BUSINESS) STORE (Morgan St) STORE (LOCATION OF BUSINESS)

Market Structures Reflections As a group pick an industry- retail clothing stores, cereals, automobiles, grocery stores, auto parts, retail shoe stores. On the top half of page 14 develop a tree map like the one we just did for your industry. On your tree map, indicate where the competition exists.

L eastcompetition MOST COMPETITION to L east competition Pure Competition Monopolistic Competition Oligopoly Monopoly Different business types face different amounts of competition. The level of competition can be described by placing market structures along a continuum. The amount of competition businesses within an industry face determines the prices and variety of goods available to customers

Perfect Competition Or Pure Competition

Characteristics of Perfect Competition A large number of buyers and sellers (Individual firms have no influence over price). Firms can easily go into and get out of business (low barriers). Firms are selling identical products (Buyers won’t care who they buy from so individual firms have no influence over price). Buyers and sellers are knowledgeable about the product’s price ( A change in price will immediately change the amounts demanded and supplied for a firm).

Examples of Perfect Competition –Commodities Natural gas, oil or coal Agricultural products –Grains –Produce –Livestock

On the bottom half of page 14, give at least 5 more specific examples of commodities (goods sold at the factor of production level, that are identical between producers, and that there is only one market price)

Monopoly

Characteristics of Monopolies There is only one seller of the product There has to be extreme barriers to entry There are no close substitutes

Characteristics of Monopolies The quantity available will be lower and the price will be higher than in a competitive market. –But the monopolist must take the Law of Demand into account. Prices up Quantity Demanded down

BARRIERS TO ENTRY Develop economies of scale Obtain a natural monopoly. Obtain a patent on your product. Obtain a government franchise or license Boeing Aircraft Factory

Barriers to Entry Government owned business Use non-competitive practices (threats/ bribes).

Barriers to Entry Limited demand. Control all natural resources needed to make the product.

Examples of Monopolies Water Companies –Each neighborhood has only one water company serving it because it is more cost effective (Natural Monopoly) National sports leagues –The Dallas Cowboys and the Texas Rangers never have to worry about competition because they have a government issued franchise Pharmaceuticals –When a company develops a new drug it is granted a patent for exclusive production for up to 20 years.

Monopoly Reflection (page 16) Directions: Copy the following, fill in the blanks and answer the question. _______________ (choose a company from the examples I gave you) is an example of a monopoly. The barrier(s) that keeps competitors out of this market are _______________________ __________________________________________ Government allows monopolies by granting patents. Explain why government does this.

Monopolistic Competition A market structure in which many firms sell products that are SIMILAR but NOT IDENTICAL

Characteristics of Monopolistic Competition Large number of buyers and sellers Most firms are medium to small size companies It is easy to get into and out of this industry (Start-up costs are low). Similar, not identical, product (Substitutable goods between firms are differentiated). Firms can raise prices (You can charge a higher price for a differentiated product).

Non-Price Competition Or Product Differentiation Firms may: Make their product with an extra or new feature Advertise heavily for name or product recognition Choose a special location Provide a higher level of service

Examples of Monopolistic Competition Restaurants Clothing stores Gas stations Grocery stores Hairdressers

Monopolistic Competition and Oligopoly Reflection Divide page 18 in half On the top half, choose a product that you regularly use and differentiate it – come up with at least 5 ways to make it different, better, more appealing to customers so you can charge more for it.

Oligopoly A market structure in which a few large firms dominate

Characterisitics of Oligopoly: A few very large firms dominate this industry There are many barriers to entry –Cost advantages (large start-up costs or economies of scale) –Legal barriers (patents & licenses) –Non-price competition (advertising) –Illegal barriers (collusion, price fixing, cartels) Pricing decisions by one firm affect all other firms (price leadership) Price wars common

Examples of Oligopoly Airlines Cereal companies Soft drink companies Automobile manufacturers

Oligopoly Reflection On the bottom half of page 18, complete the following. 1. Name four companies that fit the definition of oligopoly: a few large firms dominating the market. 2. For two of those firms explain what barriers from your notes are allowing them to do so.

Government gives a company the exclusive right to provide goods or services within an area because the costs to consumers are lowered by having a single firm provide them (ex. AMUD, Charter Cable). Four Types of Monopolies : Natural

Geographic Monopolies There are no other businesses in the immediate area to offer any competition due to low demand or extreme isolation (ex. Driftwood in Granbury).

Technological Monopolies A firm or industry has created a new product or process and obtains a patent or copyright.(ex. Polaroid or pharmaceutical firms)

Government Monopolies A government owned business that provides a product or service that private firms do not adequately provide (ex. US Post Office or Amtrak).