1. Types of Competition Monopolistic Competition Monopoly LEAST MOST
“Price Setter”
MOST
“Price Taker”
Competition in a market economy falls into 4 basic categories. Price setters are monopolies – they can set their own price. Very few businesses operate as monopolies.
At the other end of the spectrum is “perfect competition.” Ideally for consumers, every good or service desired would fall into this category which would deliver the lowest cost. The price is determined by what customers will pay. In perfect competition, they set the price and the provider “takes” what they can get. There are very few markets that operate under this condition.
Most businesses fall into the two middle categories. Of these two, the vast majority of businesses fall under “monopolistic competition.”
Oligopoly
Perfect Competition

2. Types of Competition Characteristics of MONOPOLY
A SINGLE SELLER
NO SUBSTITUTES
NO ENTRY
Complete control over market and price
You can get it only one place… is the NFL a monopoly?

3. Types of Competition Four [4] Types of MONOPOLY
Natural (city water)
Geographic (“only game in town”)
Technology (patented )
Government (by government fiat)
A natural monopoly is one where it doesn’t make sense (“cents”) to have competition. Think a city mass transit system or utilities. It would be “MORE” costly to have competing services. These are “naturally occurring” monopolies.
The internet has almost made geographic monopolies extinct unless you need it “now.” Virtually anything is available 24/7 on the world wide web. However, if you live in a very rural area with one gas station, or maybe just one dentist office, and competitors are inconveniently too far away, then they enjoy a “geographic monopoly.
A market economy cannot exist, certainly not “advance” without “technology” monopolies… that is to say “patents.” It takes millions of dollars to develop, test and bring to market the next life saving drug. If other pharmaceutical companies could just copy it, there would be no incentive to develop the next one. The “inventor” needs to recoup their costs and enjoy profit before competitors can simply copy or steal the new product.
Similarly related to a natural monopolies is a government monopoly where the government just decrees (by “fiat”) that the venture will be government built and operated. Common example is the Tennessee Valley Authority. The TVA was a New Deal project damming the Tennessee River to generate hydroelectricity.

4. Types of Competition Characteristics of OLIGOPOLY
DOMINATION BY A FEW SELLERS
Barriers to entry
little difference in products
non-price competition
limited control over price
Think car companies or airlines.
Not that many of them because it’s difficult to get in the business (high start-up costs, complexity, proprietary or difficult to obtain information).
Little product difference… cars are ALL designed to get you from here to there despite their differences… same with airlines.
So, to charge higher prices than their competitors, competitors will try to differentiate themselves in different ways… higher gas mileage, generous frequent flyer program.
Depending upon how the market their product the have some control over what price they set, but there’s enough competitors, they cannot charge what ever they want. Hybrid cars cost more than just gas cars, in part, because the manufacturers are getting you to pay more for the promised better gas mileage.

5. Types of Competition Characteristics of MONOPOLISTIC COMPETITION
Numerous sellers
relatively easy entry
differentiated products
non-price competition
some control over price
The vast majority of businesses fall into this category. Think fast food. Arby’s has a “monopoly” over their menu. You can’t get an Arby’s roast beef sandwich at McDonald’s. Still Arby’s and McDonald’s have plenty of competition from other fast food restaurants.
Unlike getting into car or airline manufacturing, comparatively it’s easy to get in the fast food business. A Greek fast food restaurant just opened in Bainbridge. It’s a one store, father and son enterprise. They’re not going to compete with McDonald’s nationwide, but they have entry the market locally and may take business from other fast food competitors in their locality.
Like oligopolies, they will try to differentiate their products… Subway – “eat fresh.” They can also charge varying amounts for their products as long as they can justify the value. I’ll pay more for a Whopper than a Big Mac as long as it’s not ridiculously more. Starbucks coffee cost a lot more than McDonald’s because people believe it tastes better.

6. Types of Competition Characteristics of PERFECT COMPETITION
LARGE MARKET
SIMILAR PRODUCTS
EASY ENTRY AND EXIT
EASILY OBTAINABLE INFORMATION
NO CONTROL OVER PRICE
The most common example given for perfect competition is agriculture, or farming. Much of the food produced in the country today is done by “agribusiness.” These are large corporate farms, but there are still smaller family farms, even people who have gardens and sell produce on the side of the road in warmer months.
So, if I want tomatoes or apples, I usually plenty of options where to get them and face it, I could argue my fruits and vegetables are better than my competitors, my tomato or peach is pretty much the same as another’s. Thus, I won’t be able to charge appreciably any more for my tomato than what my nearby competitor is charging.
It’s easy to get into and out farming. It doesn’t take a lot of knowledge and one can start a modest business with little up front cash.
Very few businesses operate in or near a perfect competition model.