1. Market Structures
SSEMI4c- Identify the basic characteristics of the four market structures

2. Competition
The rivalry among sellers to achieve goals and make the highest profit

3. Why is competition beneficial for consumers?
Lower prices
Better products
More innovation

4. Monopolistic Competition
Market structure
Nature and degree of competition among firms doing business in the same industry
Pure Competition
Monopolistic Competition
Oligopoly
Monopoly

5. Pure Competition
Identical
A market structure in which a large number of firms all produce the same product.
Large number of buyers and sellers (thousands)
Identical products –
no need for advertising – tomatoes are tomatoes
No control over price. Firms are price takers.
Few barriers to entry, businesses are free to enter into, conduct, or get out of business

6. Monopolistic Competition
A market structure in which many companies sell products that are similar but not identical.
Many Firms, but less than perfect competition (100’s)
Products are similar but not identical (fastfood).
Characterized by product differentiation (real or perceived)
Some control over price because products are not exactly the same.
No major barriers to entry. Firms can enter and leave easily.

7. Which do you prefer?

8. Non-Price Competition
The use of advertising, giveaways, or promotional campaigns to convince buyers that the product is somehow better than another brand

9. Oligopoly
A market structure in which only a few sellers offer similar or identical products.
Few very large sellers dominate the industry (10’s of firms)
ex. AT&T, Verizon, Sprint, etc.
Products can be similar or identical
Some control over price
When one changes price, the others have to decide whether to follow
Significant barrier to entry
High start-up cost
Costly R & D
Control over key resources by a competitor

10. Oligopoly – Pricing Models
Cartels - agreement between competing firms to control prices or exclude entry of a new competitor in a market
Collusion – formal agreement to set specific prices or to otherwise behave in cooperative manner (Ex: OPEC)
Price Leadership – one firm dominates the market and the others follow their lead (increasing or lowering price)

11. Monopoly A market with only one seller for a particular product
Usually one good or service
Unless regulated by the government, firm has full control over price
Complete barriers to entry (no new competition)

12. Types of Monopolies
Natural Monopoly – market situation where the costs of production are minimized by having a single firm produce the product
ex. Public utility companies – waste to run multiple electric lines, oil pipeline in Alaska
Utilizes economies of scale – average cost of production falls as the firm gets larger

13. Types of Monopoly
Geographic Monopoly – based on absence of other sellers in a certain geographic area (gas station, drugstore in small town)

14. Types of Monopoly
Technological Monopoly – based on ownership or control of a manufacturing method, process, or other scientific advance (certain pharmaceutical drugs)
Patent – exclusive right to manufacture, use, sell invention – usually good for 20 years
Copyright – authors, art – good for their lifetime plus 50 years

15. Types of Monopolies
Government Monopoly - monopoly owned and operated by the government (military, water and sewage)