1. Chapter 7: Market Structures
Perfect Competition: a large # of firms produce the same product
4 Conditions
Many buyers and sellers
Sellers offer identical products
Buyers and sellers are well informed
Sellers are able to enter and exit the market freely

2. Commodity A product that is the same, no matter who produces it Gas
Milk
Notebook Paper

3. A market dominated by a single seller

5. Natural Monopolies
A market that runs most efficiently when one large firm provides all of the output.
Ex-public water supplies
The environment would be a mess if all kinds of companies drilled for water

7. Barriers to entry Things that make competition difficult
In the old days the phone company was a local monopoly…wire service was costly and took up space..not enough room for competitors
Enter cell phones: wireless, lots of competition

10. Government Monopolies
Patents-an exclusive right to sell a new good, allows firms to benefit from their research and development
Franchises and licenses-only one companies vending machines, or only one contracted vendor per market

11. Price Discrimination
Charging different prices to different groups of people
Discounted airline fairs, weekends
Manufacturers rebate offers
Senior citizen discounts
Student discounts
Free meals for little kids

12. Conditions for Price Discrimination
Market Power
Distinct Customer Groups
Difficult Resale

13. Monopolistic Competition
A market structure in which many companies sell products that are similar but not identical
Four Conditions:
Many Firms
Few barriers to entry
Slight control over price
Differentiated Price

14. Nonprice Competition Competition through ways other than lower prices
Physical characteristics
Location
Service Level
Advertising

17. Oligopoly A market dominated by a few, large, profitable firms
They “seem” to work together to control output and price
Difficult to regulate
Collusion: an agreement amongst companies to divide the market, set prices
Cartel: a formal organization of producers that agree to fix production and prices

18. OPEC
OPEC

19. OPEC
Oil producing and exporting countries
They control OIL

24. Comparison of Market Structure
Number of Firms
Variety of Goods
Control Over Prices
Barriers to Entry
Examples

25. Gov’t Regulation
Predatory Pricing: Driving competitors out of business, often selling products below cost
Antitrust Laws: prevent monopolies from eliminating competition
AT&T was broken up by the Federal Gov’t in 1982, it has slowly been rebuilt through the merger process

26. Regulation Antitrust Laws Breaking up monopolies
Blocking mergers-this doesn’t happen much anymore

27. Deregulation Late 70’s, Early 80,s, Now Airlines Trucking TV Radio
The media in general
Prices end up going up in these cases