1. MONOPOLISTIC COMPETITION Characteristics –Relatively large numbers of sellers (25-75 roughly) –Sellers try to differentiate their product from others; usually through advertising –Easy entry to and exit from this market

2. MONOPOLISTIC COMPETITION The 1 st and 3 rd characteristics (many sellers, easy entry) represent the “competition” part of monopolistic competition The 2 nd characteristic (differentiation) represents the “monopolistic” part of monopolistic competition Monopolistically competitive industries are more competitive than monopolistic

3. MONOPOLISTIC COMPETITION How do businesses try to differentiate (other than price) their product from competitors? In other words, what is the NONPRICE COMPETITION that takes place among businesses?

4. MONOPOLISTIC COMPETITION Product Quality – businesses try to convince consumers that there is a real difference in the quality of their product Services Offered – Pizza delivery? Same day furniture delivery? Polite workers?

5. MONOPOLISTIC COMPETITION Location, Location, Location and accessibility –Open 24 hours, close to the interstate, MiniMarts Advertising and Packaging – companies try to create brand name loyalty; attractive packaging

6. OLIGOPOLY A market dominated by a few large producers (75%) Breakfast Cereals –Big Three –Kellogs, Post, General Mills

7. OLIGOPOLY Automobile Industry –Big Six –Ford, GM, Chrysler, Toyota, Honda, Nissan Tobacco Motion Pictures Passenger aircraft Sellers try to differentiate their products

8. OLIGOPOLY Oligopolies can form when there are significant barriers to entering a market Why is the automobile industry an oligopoly?

9. OLIGOPOLY Oligopolistic companies have greater control over the price of their product than monopolistic competition or pure competition companies

10. OLIGOPOLY However, these companies must take into account the reaction of their rivals 3 oligopolistic practices that are of concern to government regulators –Price Leadership –Collusion –Cartels

11. OLIGOPOLY Price Leadership – an influential company takes the lead in announcing price increases that lead the other companies to do the same. –Sometimes the effect is a price war that hurts producers (but helps consumers)

12. OLIGOPOLY Collusion – an agreement among the companies to fix prices at a high level in order to maximize profits Collusion is illegal in the United States

13. OLIGOPOLY Cartels – a formal organization of producers that fix output and prices Illegal in the U.S. OPEC

14. Pure Monopoly Characteristics –Single Seller – the firm IS the industry –No close substitutes – The consumer who refuses to purchase this good, does without it –Total control over price and output (restrained by the law of demand) –Entry to this market is not possible

15. Pure Monopoly Pure monopoly is relatively rare “Near” Monopolies exist when a single firm controls 75% or more of a market Intel Wham-O (frisbees) Cable TV companies like Comcast Microsoft operating systems

16. Types of Monopoly Natural – when a market is most efficient when one company provides all of the product Examples –Usually public utilities like water and electricity (although, this is changing) –Government regulates and controls prices

17. Types of Monopoly Government issued patents – gives a single firm exclusive rights (20 years) to sell a product Why? Incentive to invent and create

18. Types of Monopoly A franchise contract – a single firm is given the right to sell a product in an exclusive market –Woodlands Pavilion –Reliant Stadium –National Parks

19. Types of Monopoly Geographic Monopoly – gas station in the middle-of- nowhere Texas