1. CHAPTER 7 Market Structures

2. Characteristics of Monopolistic Competition Most real markets fall between perfect competition and monopoly Monopolistic Competition-many sellers offer similar products  one of the most common market structures  Product differentiation- sellers try to distinguish their products from similar ones  Nonprice competition- use factors other than price to attract customers

3. Characteristics of Monopolistic Competition 1: Many Sellers and Many Buyers  Many Options  Producers choose products, amount, and price 2: Similar but Differentiated Products  Consumer Loyalty with unique products  Use market research  Sophisticated techniques  Focus groups-moderated discussions with small groups of consumers  Survey large number of consumers 3:Limited Control of Prices  Differentiation five producers limited control of prices  Low prices  Name brands  Consumers pay extra if they perceive important enough difference  Will switch if price is too high 4:Free Entry and Exit  No barriers  Competition is difficult for small businesses  Some firms take losses  Signal that it is time to exit the market

4. Characteristics of an Oligopoly Oligopoly-market structure with only a few sellers offering similar products Less competitive than monopolistic competition  Each firm has large market share- percent of total sales in the market Few firms due to high start-up costs- expenses of entering the market

5. Characteristics of an Oligopoly 1: Few Sellers/Many Buyers  Few firms dominated market  Industry is oligopoly if four firms control 40% of market  Half manufacturers are Oligopoly  Cereals, soft drinks, movies, industrial products 2: Standardized or Differentiated Products  Standardized  Brand name, service, location  Differentiated  Marketing strategies  Brand-name products 3: Control of Prices  Price affects entire market  One lowers prices, most will follow  One raises prices, some may not follow 4: Little Freedom of Entry/Exit  High start-up costs  Established firms are better off  High investments in oligopolies

6. Promoting Competition Government regulation- rules of laws that control business behavior Antitrust Legislation-define monopolies, allow government to control or break them up Trust-group of firms combined to reduce competition Merger- joining of firms or purchase of one firm by another

7. Ensuring a Level Playing Field Government ensures competitiveness U.S. Laws prohibit most monopolies Price fixing- competing businesses collaborate to set prices  Alternatively, they might agree to restrict output to drive up prices Market allocation- businesses divide up market, control own territory Predatory pricing-set up prices below cost to drive out small producers  Used by cartels and large producers

8. Protecting Consumers Cease and desist order- requires firms to stop unfair business practices  Issued when a business’ behavior is unfair to competitors or consumers Public disclosure- requires businesses to reveal product information  Enables consumers to make informed buying decisions

9. Deregulating Industries 20 th Century regulation focused on public service industries Deregulation- reduces or removes government oversight and control  May lead to fewer consumer protections Usually results in lower prices since markets become more competitive  With regulated prices, firms have no incentive to reduce costs

10. Vocabulary Monopolistic Competitionmany sellers offer similar products Product DifferentiationWhen sellers try to distinguish their products from similar ones Nonprice CompetitionWhen businesses use factors other than price to attract customers Focus Groupmoderated discussions with small groups of consumers Oligopolymarket structure with only a few sellers offering similar products Market SharePercent of total sales in the market Start-up CostsExpenses of entering the market Anti-trust Legislationdefine monopolies, allow government to control or break them up

11. Vocabulary TrustGroup of firms combined to reduce competition MergerJoining of firms or purchase of one firm by another Price FixingCompeting businesses collaborate to set prices Market AllocationBusinesses divide up market, control own territory Predatory PricingSet up prices below cost to drive out small producers Cease and Desist OrderRequires firms to stop unfair business practices Public DisclosureRequires businesses to reveal product information DeregulationReduces or removes government oversight and control