1. Competition
Chapter 9 Sections 1 thru 3

2. YouTube

4. Competition Consumer’s Benefit Lower Prices More Choices
Better Quality

5. Market Structure
Amount of Competition

6. Perfect Competition
Situation that exists when a market includes so many sellers of a particular good or service that each seller accounts for just a small portion of the overall market.

7. Five Conditions of Perfect Competition
Large Market
Independence
Nearly Identical Product
Easy Entry and Exit
Easily Obtainable Information

8. Cont. Perfect Competition is rare Information is Key for Consumer
Benefits – Economic Efficiency
Examples?

9. Monopoly
Single seller controls the supply of the good or service and thus determines the price.
Examples?

10. 4 Characteristics of a Monopoly
Single Seller
No substitutes or close substitutes exist
Large barriers to entry for potential competition to enter the industry.
Almost complete control over price.

11. Cont. Can monopolies charge any price they want??
Why don’t other businesses join?

12. Types of Monopolies
Natural – Government grants rights to companies (Ex. Utilities, Bus Systems, Cable TV).
Economies of Scale – Low production costs resulting from the large size of output.

13. Cont.
Geographic – Often in rural areas – Ex. A small town grocery store
Government – United States Postal Service.

14. Cont.
Technological – Rights to a new invention. Example – Microsoft Windows.
Copyrights and Patents

15. Clip of the Day

17. Oligopoly
Industry dominated by a few suppliers who exercise some control over price.

18. Characteristics of an Oligopoly
Dominated by only a few sellers
Large (difficult) barriers to entry
Identical or slightly different products
Nonprice Competition amongst the firms
Interdepence

19. Cont.
Product Differentiation - Manufacturers use of minor differences in quality and features to try and differentiate between similar goods and services.
Can be real or perceived differences in a good or service.

20. Cont.
Interdependent Behavior – Follow/copy what the other firms are doing. Ex. GM offers in employee pricing, then Ford does, then Chrysler

21. Cont.
Collusion – Secret agreement amongst competitors in an oligopoly. ILLEGAL to do.
DON’T CONFUSE WITH…
Cartel – Arrangement among different businesses to control and supply (and therefore price) involving industries in different countries outside the US.

22. Monopolistic Competition
Large number of sellers offer similar but slightly different products and in which each has some control over price.
Examples

23. Characteristics of Monopolistic Competition
Numerous Sellers – No single seller or small group of sellers dominates the market.
Relatively easy entry into the market.
Nonprice competition
Some control over price

24. Cont.
Brand Loyalty – Gain respect and a following and you can raise prices at least slightly (Ex. Nike)
Advertising…

29. Advertising Extremely important in monopolistic and oligopolies.
Must get people to see differences between your product and the competitors, whether that difference is real or perceived.

30. Anti-Trusts and Gov’t Regulation
WHAT should the role of government be with regards to competition in the market place?

31. Anti-Trust Laws
Goal = Encourage competition in the economy and to prevent unfair trade practices.

32. Cont.
Anti-Trust Legislation = Laws written to prevent new monopolies (AKA Trusts) from forming and to break up those that already exist.
Reasons?

33. Merger
Two or more companies combine into one business.
3 Types

37. Mergers Horizontal – Same types of business
Vertical – Different types of businesses but same industry
Conglomerate – Unrelated businesses combine together

38. Proctor & Gamble Air Fresheners Febreze Air Fresheners
Antiperspirants & Deodorants Old Spice Secret
Baby & Child Care Charmin Children's Pepto Dreft Luvs Pampers Pampers Kandoo Puffs
Batteries Duracell Body Wash & Soap Camay Ivory Noxzema Olay Old Spice Safeguard Zest
Household Cleaners Bounty Febreze Air Fresheners Mr. Clean Mr. Clean AutoDry Carwash Swiffer
Laundry & Fabric Care Bounce Cheer Downy Dreft Era Febreze Air Fresheners Gain Ivory Tide
Oral Care Braun Crest Crest Glide Crest Whitestrips Fixodent Gleem Scope Oral-B