1. Types of Markets-How do firms sell their products?

2. Characteristics of a PC Market  Very large #s  Standardized product (agriculture)  “Price Takers”  market sets price (person selling has no control over price)  Free entry and exit  start up costs/technologies are such that anyone can freely enter the market

3.  Single seller  No close subs  “Price Maker”  High barriers to entry-restricted by technology, patents, cash outlays (amt $ to start company)

4.  Economies of Scale-cost of entering industry & size of those in the industry discourage others from entering  Patents and licenses-legal barriers keep others from entering  Ownership of resources-DeBeers Diamond company markets 70% of all diamonds in world  Pricing-lowering prices to drive out competition

5.  Large # sellers  Small market share  No collusion  Independent action  Differentiated products-quality, style, service, brand name  Easy entry/exit-limited barriers to entry, non-price competition-advertising to make price less of factor in decision-making

7.  Product differentiation  Idea that we view products as being different  Can be based on quality, style, branding  Can lead to poor choices (price=quality)  Product development-new products are developed which increases differentiation  Advertising-  firms must balance price, product, and costs of developing demand to maximize profit

8.  Products can be similar or differentiated  Key is market share and price control  Profits of firm not only depend on its own price, but also on price of competitor  High barriers to entry-oil industry operates as world wide cartel