1. Market Models

2. Market Structure Continuum
Four Market Models
Pure competition
Pure monopoly
Monopolistic competition
Oligopoly
Imperfect Competition
Pure
Competition
Monopolistic
Competition
Pure
Monopoly
Oligopoly
Market Structure Continuum
9-2

3. Four Market Structures
Perfect
Competition
Monopolistic
Competition
Monopoly
Oligopoly
Imperfect Competition
Characteristics of Perfect Competition:
Many small firms
Identical products (perfect substitutes)
Low Barriers- Easy for firms to enter and exit the industry
Seller has no need to advertise
Firms are “Price Takers”
The seller has NO control over price.
Copyright
ACDC Leadership 2015

4. Perfect Competition LRATC
Example:
Agriculture
Output

5. Four Market Structures
Perfect
Competition
Monopolistic
Competition
Monopoly
Oligopoly
Characteristics of Monopoly:
One large firm (the firm is the market)
Unique product (no close substitutes)
High Barriers- Firms cannot enter the industry
Monopolies are “Price Makers”
Copyright
ACDC Leadership 2015

6. Pure Monopoly LRATC
Examples:
Allegheny Power
Monsanto

7. Barriers to Entry Types of Barriers to Entry 1. Economies of Scale
A monopoly wouldn’t last long if there were not high barriers to keep other firms from entering.
Types of Barriers to Entry
1. Economies of Scale
Ex: There is only one electric company because they are the only ones that can make electricity ay the lowest cost. This is a “natural monopoly” - Other Examples?
2. Superior Technology – Examples?
3. Geography or Ownership of Raw Materials – Examples?
4. Government Created Barriers
The government issues patents to protect inventors and forbids others from using their invention – Examples?
Copyright
ACDC Leadership 2015

8. Four Market Structures Characteristics of Oligopolies:
Perfect
Competition
Monopolistic
Competition
Monopoly
Oligopoly
Characteristics of Oligopolies:
A Few Large Producers (Less than 10)
Identical or Differentiated Products
High Barriers to Entry
Control Over Price (Price Maker)
Mutual Interdependence
Firms must worry about the decisions of their competitors and use strategy
Copyright
ACDC Leadership 2015

9. Oligopoly LRATC
Examples:
Cell Service
Cars

10. Four Market Structures
Perfect
Competition
Monopolistic
Competition
Monopoly
Oligopoly
Characteristics of Monop. Comp.:
Relatively Large Number of Sellers
Differentiated Products
Some control over price
Low Barriers- easy for firms to enter
A lot of non-price competition (Advertising)
Copyright
ACDC Leadership 2015

11. Monopolistic Competition LRATC
Examples:
Restaurants
Clothing Stores (as well as most retail…)