1. Market Structure and Competition

2. Market Structure Not all markets are the same
Market structure is based on 2 factors:
1. Differentiated or Identical products
2. Number of firms
Ease of Entry into, and Exit from, the market
There are 4 main types of Markets in existence

3. Perfect Competition Perfect Competition
This is found when your actions (producer or consumer) cannot affect the market price

4. Perfect Competition 2 necessary conditions Standardized product
A product that consumers regard as the same, even if it come from different firms.
Many firms, none of which has a large market share.
Market Share – the % of the total industry output accounted for by that firm.

5. Perfect Competition A usual, but not required condition:
Easy entry and Exit
No obstacles to get in, or out of the market

6. Monopoly
Monopoly
Occurs when there is only 1 producer of a good/service that has no close substitutes.

7. Monopoly 3 Characteristics: 1.) Only 1 seller 2.) Control of Prices
3.) Significant Barriers to Entry

8. Monopoly Types of Monopolies: a.) Control of a Scarce resource
b.) Economies of Scale
Where the average cost of a product falls as the company grows
Sometimes called a “natural monopoly”
Ex.) Utility providers
c.) Technological Superiority
Intel in the 1990’s
d.) Government Created
Ex.) Post Office, Utility companies, Patents

9. Imperfect Competition
Monopolistic Competition
Each producer has some impact on the price, but that is limited by other competing firms.

10. Monopolistic Competition
3 Characteristics
1.) Large number of Firms
2.) Differentiated Products
3.) Easy entry and exit to the market

11. Imperfect Competition
Oligopoly
Where a few sellers work together to act like a Monopoly

12. Oligopoly Characteristics 1.) Small number of Firms
2.) Interdependence
The actions of one firm have an effect on the outcome of the others
3.) Barriers to Entry

13. Oligopoly or Monopolistic Competition?
2 ways to determine an Oligopoly
1.) Concentration Ratios
The % of industry sales accounted for by the top firms. Usually the top 4 or top 8.
2.) Herfindahl –Hirschman Index (HHI)
The square of each firm’s market summed for the industry.