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Competitive Market Structures
Ch.7.1 CA. State Standard # Students explain the role of competition in market economy
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TYPES OF COMPETITION Competition- struggle among sellers to attract consumers. Perfect Competition – is a market Where buyers & sellers: 1. deal in identical products, 2. are large in numbers (not powerful enough to effect price), 3. act independently, 4. are informed about products and prices, and 5. have the freedom to enter or get out of business. Imperfect Competition – Market structures that lack one of the conditions for perfect competition. (Most firms in the US)
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Monopolistic Competition
- In a Given Market a firm will make its product a little different from others to try to attract consumers. It deals with product differentiation – products are not the same Market – toothpaste. Competitors: Colgate, Crest, Gleam, Arm & Hammer, Bleach White, Aim, Sensodyne, Aqua Fresh, etc.
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Monopolistic Competition
Non-price competition- methods used to lure consumers into buying products without lowering price. Advertising – radio, TV. news papers, bill boards. They try to make products seem different than everyone else. Special, no competition.
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Oligopoly Few large sellers of a product dominate the market. (auto industry, airlines, soft drink, telecommunications) When one firm lowers price other firms have to do the same, or they will go out of business. Price Leader (largest Corp.) Lowering prices can lead to a price war (good for consumers) – a series of price cuts by all producers which leads to unusually low prices, sometimes even below the cost of production. Raising prices could make you go out of business also. Collusion- agreements to set prices among producers. (Illegal).
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Monopoly Only one seller of a particular product in the market. No substitutes. (can control prices) There are no pure monopolies in the U.S.! They are illegal (Sherman Anti-Trust Act 1890). Rockefeller (Standard Oil), Carnegie (US Steel) There are near monopolies: U.S. Postal Service, utilities companies
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Monopolies that do exist
Geographic monopolies – the location makes them a monopoly. Ex: Gas stations miles from anywhere (Vegas), Food vendors at arenas/Amusement parks/and theatres, a store in the mountains/lake. These are the only places to purchase items, and the producers know it!!(price?) Technological monopolies – New technologies set companies apart from others. Usually the company’s products are better (Microsoft)
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Competitive Markets SAR questions (4)
What is the difference between perfect and imperfect competition? (p ) Explain Monopolistic competition, product differentiation, and discuss non-price competition, its major forms, and why it’s used. (p ) Describe an Oligopolistic market and how it uses interdependent behavior. Include these ideas: collusion, and Price leader. (p ) Define monopoly, and explain these types of monopolies: 1. Natural, 2. Geographical, 3. Technological (p )
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