1. BEllwork
1. Which of the following is NOT a condition for perfect competition?
(1) many buyers and sellers participate
(2) identical products are offered
(3) market barriers are in place
(4) buyers and sellers are well-informed about goods and services
2. How does a perfect market influence output?
(1) Each firm adjusts its output so that it just covers all of its costs.
(2) Each firm makes its output as large as possible even though some goods are not sold.
(3) Different firms make different amounts of goods, but some make a profit and others do not.
(4) Different firms each strive to make more goods to capture more of the market.

2. 7.2 and 7.3 Market Structures
E.Q: Describe the characteristics and give examples of each market structure

3. Market Structures
Type of market structure influences how a firm behaves:
Pricing
Supply
Barriers to Entry
Efficiency
Competition
E.Q: Describe the characteristics and give examples of each market structure

4. Markets are classified by 4 structures
1. Pure (perfect) Competition
2. Monopolistic Competition
3. Oligopoly
4. Monopoly
SWS 2006

5. Comparison of Market Structures
Markets can be grouped into four basic structures: perfect competition, monopolistic competition, oligopoly, and monopoly
Comparison of Market Structures
Number of firms
Variety of goods
Control over prices
Barriers to entry and exit
Examples
Perfect Competition
Many
None
Wheat,
shares of stock
Monopolistic Competition
Many
Some
Little
Low
Jeans,
books
Oligopoly
Two to four dominate
Some
High
Cars,
movie studios
Monopoly
One
None
Complete
Public water
E.Q: Describe the characteristics and give examples of each market structure

6. Market Structure Determinants of market structure
Freedom of entry and exit
Nature of the product – homogenous (identical), differentiated?
Control over supply/output
Control over price
Barriers to entry
E.Q: Describe the characteristics and give examples of each market structure

7. The 5 conditions of perfect competition
LARGE number of SMALL firms.
No single buyer or seller can influence the price.
Buyers and sellers deal in identical products. No product differences. (EXAMPLES: Salt, Flour, Commodity, Corn)
Unlimited Competition: so many firms, that suppliers lose the ability to set their own price.
No Barriers to Entry. Sellers are free to enter the market, conduct business and free to leave the market. (Low cost to enter)
Each firm is a PRICE-TAKER (more on this later)
CONSUMERS HAVE THE LARGEST SELECTION OF BUYERS TO BUY GOODS FROM BECAUSE NO SINGLE GOOD IS MORE APPEALING THAN ANOTHER.
SWS 2006
E.Q: Describe the characteristics and give examples of each market structure

8. Financial markets – stock exchange, currency markets, bond markets
Market Structure
Examples of perfect competition:
Financial markets – stock exchange, currency markets, bond markets
Agriculture
E.Q: Describe the characteristics and give examples of each market structure

9. Monopolistic Competition
The 5 conditions of Monopolistic Competition
LARGE number of large companies (but fewer than perfect competition).
Sellers can influence the price through creating a product identity (more on this later)
Products are NOT exactly identical, BUT VERY SIMILAR, so companies use PRODUCT DIFFERENTIATION
Heavy Competition: Firms must remain aware of their competitor’s actions, but they each have some ability to control their own prices.
Low Barriers to Entry: harder to get started because of the amount of competition.
Monopolistic competition takes its name and its structure from elements of monopoly and perfect competition.
E.Q: Describe the characteristics and give examples of each market structure

10. Imperfect or Monopolistic Competition
**Market Structure**
Imperfect or Monopolistic Competition
Many buyers and sellers
Products differentiated
Relatively free entry and exit
Each firm may have a tiny ‘monopoly’ because of the differentiation of their product
Firm has some control over price
Examples – restaurants, jeans, shampoos, shoes professions –plasterers, plumbers, etc.
E.Q: Describe the characteristics and give examples of each market structure

11. Conditions of an Oligopoly
What is an Oligopoly?
A market in which a two-three large sellers control most of the production of a good or service and they work together on setting prices.
Conditions of an Oligopoly
Very few Sellers that control the entire market.
Products may be differentiated or identical (but they are usually standardized)
Medium barriers to entry: Difficult to Enter the market because the competitors work together to control all the resources & prices.
The actions of one affects all the producers.
Potential for Collusion
E.Q: Describe the characteristics and give examples of each market structure

12. Oligopoly – Competition amongst the few
**Market Structure**
Oligopoly – Competition amongst the few
Industry dominated by small number of large firms
Many firms may make up the industry
Medium to High barriers to entry
Products could be highly differentiated – branding or homogenous
Non–price competition
Potential for collusion?
Abnormal profits
High degree of interdependence between firms
E.Q: Describe the characteristics and give examples of each market structure

13. Market Structure Examples of oligopolistic structures: Supermarkets
Banking industry
Chemicals
Oil
Medicinal drugs
Automotive
E.Q: Describe the characteristics and give examples of each market structure

14. **Oligopoly**
Oligopoly describes a market dominated by a few large, profitable firms.
Collusion
Collusion is an agreement among members of an oligopoly to set prices and production levels.
Price- fixing is an agreement among firms to sell at the same or similar prices.
Cartels
A cartel is an association by producers established to coordinate prices and production.
E.Q: Describe the characteristics and give examples of each market structure

15. **Market Structure**
Monopoly: Pure monopoly – industry is the firm! Actual monopoly – where firm has >25% market share Natural Monopoly – high fixed costs – gas, electricity, water, telecommunications, rail
E.Q: Describe the characteristics and give examples of each market structure

16. **Government Monopolies**
A government monopoly is a monopoly created by the government.
Technological Monopolies
The government grants patents, licenses that give the inventor of a new product the exclusive right to sell it for a certain period of time.
Franchises and Licenses
A franchise is a contract that gives a single firm the right to sell its goods within an exclusive market. A license is a government-issued right to operate a business.
Industrial Organizations
In rare cases, such as sports leagues, the government allows companies in an industry to restrict the number of firms in the market.
E.Q: Describe the characteristics and give examples of each market structure

17. Advantages and disadvantages of monopoly: Advantages:
**Market Structure**
Advantages and disadvantages of monopoly:
Advantages:
May be appropriate if natural monopoly
Encourages innovation
Development of some products not likely without some guarantee of monopoly in production
Economies of scale can be gained – consumer may benefit
E.Q: Describe the characteristics and give examples of each market structure

18. Monopoly: **Market Structure** High barriers to entry
Firm controls price OR output/supply
Abnormal profits in long run
Possibility of price discrimination
Consumer choice limited
Prices in excess of MC
Disadvantages:
Exploitation of consumer – higher prices
Potential for supply to be limited - less choice
Potential for inefficiency –
E.Q: Describe the characteristics and give examples of each market structure

19. **Output Decisions**
Even a monopolist faces a limited choice – it can choose to set either output or price, but not both.
Monopolists will try to maximize profits; therefore, compared with a perfectly competitive market, the monopolist produces fewer goods at a higher price.
A monopolist sets output at a point where marginal revenue is equal to marginal cost.
Setting a Price in a Monopoly
Market Price $11 $3
Price
9,000
Output
(in doses)
Marginal Cost
Demand
Marginal Revenue B C A
E.Q: Describe the characteristics and give examples of each market structure

20. Discussion
Oligopolistic firms often work together to form a monopoly, by agreeing to set prices and production levels…the government try to regulate against this…why?

21. Assignment
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