1. Market Structure & Competition
Economics
Market Structure & Competition

2. Market Structures There are four main market structures
perfect competition
imperfect competition
oligopoly
monopoly

3. Perfect Competition many buyers and sellers a standard product
easy entry and exit

4. Imperfect Competition
many buyers and sellers
slightly differentiated products
easy entry and exit

5. Oligopoly = selling by a few
Few firms
Some product differentiation
Firms have more control over price
Some barriers to entry

6. Monopoly = one seller Only one firm One product, no substitutes
Control of price
Impossible barrier of entry

7. Entry Barriers High production costs
Expensive capital equipment needed
Intellectual property
Access to natural resources
Experience (example: large const & military contracts)
Licensing

8. Attributes of Market Structures
Perfect Competition
very many
always
very easy
none
farming
Imperfect
Competition
many
never
fairly easy
some
restaurants
Oligopoly
few
sometimes
difficult
some
automobile
manufacturing
Monopoly
one
not
applicable
very
difficult
great
public
utilities
Numbers of
Businesses
Standard
Product
Entry and Exit of
New Business
Market Power
Example

9. Karl Marx’s theory of exploitation
A product’s price is based on the amount of labor that goes into producing it
Capitalists cut costs by minimizing workers’ wages and by maximizing the length of the workday
Capitalists keep the profits for themselves
What does this ignore? Think about factors of production, and competition. What about broad public firm ownership? What about labor laws?

10. Actions and Reactions among Rivals in an Oligopoly (Coke and Pepsi)
Probable
Response of
Competitors
keep prices constant
match price drop
Effect on
Company A’s
Market Share
product now high-priced, so market share falls
since all companies selling at lower price, Company A’s market share stays constant
Company A’s
Quantity
Demanded
large increase as market share lost to competitors
small increase as lower prices for all companies attract new buyers
Action of
Company A
raise price
lower price

11. Cooperative Oligopolies
There are various ways that oligopolists can cooperate
price leadership
collusion
cartel

12. Features of Monopolies (Utilities)
A monopolist charges a higher price and a lower quantity than would occur if the market were perfectly competitive.
Regulators of monopolies usually adopt average-cost pricing.

13. Antitrust Legislation
Sherman Antitrust Act (1890)
Firms were pooling their shares into “Trusts”, and colluding
It is illegal to “monopolize, or attempt to monopolize, or combine or conspire….to monopolize” business.
Used against Standard Oil and American Tobacco Co.

14. Tobacco was big business

15. Antitrust Legislation
Clayton Act (1914)
The Sherman Act had caused a big wave of mergers.
It was also being used against labor unions (cartels)
Firms were setting up Interlocking Directorates, and still colluding
Firms would impose “Tying Contracts” on their distributors, to lock-out competition
Clayton Act prohibited anticompetitive takeovers
It prohibited price discrimination and price fixing
It exempted labor unions and agriculture
Federal Trade Commission was formed to police it

16. Standard Oil

17. Rockefeller’s Standard Oil

18. Farmer vs. Railroad Monopoly