1. Market Structures
Economics Chapter 7

2. Agenda 10/27 CBM # 4 Types of Market Structures
Group Activity: Market Structure Case Studies
Objective: We will understand the characteristics of competitive and uncompetitive markets when it comes to prices.

3. Market Structures Nobody Sleeps in Economics Class!!!!
Market Structures – degree of competition among producers, depends upon:
Number of producers -- helps determine the level of competition more producers = more competition
Similarity of products – degree to which producers in a market are similar. The more similar, the greater the competition
Ease of entry -- markets that are easy to enter are the most competitive
Control over prices -- ability to influence prices = market power the more competitive the market the less market power individual businesses have
Nobody Sleeps in Economics Class!!!!

4. Perfect Competition Many producers and consumers Identical products
Easy entry into market
No control over prices
Prices determined by supply & demand
Consumers have easy access to information about products and prices
Producers are forced to be efficient
Consumers pay equilibrium price

5. Monopolistic Competition
Many producers provide similar but varied goods
Price competition
Non price competition – differentiation
Markets remain competitive
Examples:
Restaurants
Plumbers
Health clubs
Hairdressers

6. Oligopoly
Small number of producers provide similar but not identical goods
Producers have some control over prices – often set in response to decisions of other producers
Industry dominated by a few firms producing similar products
Bigger producers have advantage over smaller producers – economies of scale
Collusion – producers make agreements on production levels and pricing
Cartels – set production levels and prices for specific products, example OPEC -- organization of petroleum exporting countries
Examples – airlines, automobiles, soda

7. Monopoly Market in which a single producer provides unique product
Producers have:
Significant control over prices
Less incentive to satisfy consumers
High Barriers to entering the market
Anti-Trust Laws stop Monopolies
Most Monopolies are illegal
Types of Monopolies:
Resource monopolies – one producer controls a natural resource
Government created – protect inventors of products – copyrights/patents , National Park Service, licenses
Natural monopolies – single firm provides good or service more efficiently and at a lower cost – utility companies, cable

11. Economies of Scale
Economies of scale: greater efficiency and cost savings that result from increased production
Usually associated with natural monopolies
Examples: cost of supplying water, cable company operating in neighborhood

12. Anti-Trust Laws
United States antitrust law prohibits anti-competitive behavior – monopoly
Encourage competition in the marketplace
Make illegal certain practices deemed to hurt businesses or consumers or both
Sherman Antitrust Act – limits cartels and monopolies – response to John D Rockefeller’s Standard Oil monopoly (1911)

14. How else can a market fail??? Externalities & Public Goods
Market Failures
Occur when markets do not allocate goods and services efficiently:
Monopoly, Oligopoly and Monopolistic Competition are all examples of Market Failure
How else can a market fail???
Externalities & Public Goods
Externalities – things that affect someone other than producer or consumer
It is a side effect of production or consumption that has consequences for people other than the producer or consumer. You might think of externalities as spillover effects, either costs or benefits, resulting from the actions of companies or individuals.
Examples:
When a factory dumps chemical waste into a river and the polluted water affects the health of people who live downstream, that is an externality.
If a neighbor plants a new flower garden and the results please you, that is also an externality
If that same neighbor holds a party with loud music that keeps you up at night, that is an externality, too. In fact, it is an externality if you hear the music at all, whether you like it or not.
Public Goods – good available for everyone – regardless of ability to pay
goods and services that are not provided by the market system because of the difficulty of getting people who use them to pay for their use.
Streetlights & sidewalks
fire and police services, national defense, and public parks.
opposite of private goods, or goods and services that are sold in markets.
Private firms do not provide us with these public goods for a simple reason: they have no way to make the people who benefit from them pay for them.

15. Externalities and Public Goods
Externalities – things that affect someone other than producer or consumer; spillover effects, either costs or benefits, resulting from the actions of companies or individuals
Examples:
factory dumps chemical waste into a river, people downstream get sick
neighbor plants a new flower garden, results are pleasing to you
Public Goods – good available for everyone – regardless of ability to pay (opposite of private goods)
goods and services that are not provided by the market system because of the difficulty of getting people who use them to pay for their use.
Streetlights and sidewalks
fire and police services, national defense, public parks
Private firms do not provide us with these public goods because they have no way to make the people who benefit from them pay for them.
Externality cont.: If that same neighbor holds a party with loud music that keeps you up at night, that is an externality, too. In fact, it is an externality if you hear the music at all, whether you like it or not.

16. Market Structures – Case Studies
Class Activity – Groups of 4, examine case studies, create posters and present findings to class

17. Monopolistic Competition
Market Structures
Perfect
Competition
Pure Monopoly
Monopolistic Competition
Oligopoly
Monopoly
The further right on the scale, the greater the degree of monopoly power exercised by the firm.
Perfect Competition
Monopolistic Competition
Oligopoly
Monopoly
Perfect Competition:
Many producers and consumers
Identical products
Easy entry into market
Prices determined by supply & demand
Consumers have easy access to information about products and prices
Producers are forced to be efficient
Consumers pay equilibrium price
Monopolies:
Market in which a single producer provides unique product
Producers have:
Significant control over prices
Less incentive to satisfy consumers
High Barriers to entering the market
Anti-Trust Laws stop Monopolies (standard oil)
Most Monopolies are illegal
Types of Monopolies:
Resource monopolies – one producer controls a natural resource
Government created – protect inventors of products – copyrights/patents – public franchise – National Park Service – licensed – car inspections
Natural monopolies – single firm provides good or service more efficiently and at a lower cost – utility companies, cable tv
Oligopoly:
Small number of producers provide similar but not identical goods
Producers have some control over prices – often set in response to decisions of other producers
Oligopolies dominate markets – collusion occurs
Industry dominated by a few firms producing similar products
Bigger producers have advantage over smaller producers
Examples – airlines, automobiles, soda
Collusion – producers make agreements on production levels and pricing
Cartels – set production levels and prices for specific products OPEC -- organization of petroleum exporting countries
Monopolistic Competition:
Many producers provide similar but varied goods
Characteristics:
Price competition
Non price competition – differentiation
Markets remain competitive
Examples:
Restaurants
Plumbers/electricians/local builders
Lawyers
Insurance brokers
Health clubs
Hairdressers
Funeral directors