1. Sources of Market Power
What if products are not standardized?
What if there are few sellers or buyers?
What if there are high barriers to entry or exit?

2. What happens when we violate these assumptions…
Assumptions that Underlie Perfect Competition
Firms sell standardized products
(commodities).
2. Firms are all price takers:
no one firm’s actions can “move the market.”
3. There is free entry and exit of firms with perfectly mobile factors of production (capital and labor) in the long run.
4. Firms and consumers have perfect information.
What happens when we violate these assumptions…

3. What if Products are NOT Standardized?
Experience Goods: Consumers do not know the utility until AFTER consumption.
Credence Goods: Consumers do not know the utility EVER – even after consumption.

4. What if Products are NOT Excludable and/or Rival (Subtractable)?
Rival, non-excludable
From: Elinor Ostrom (2010) “Beyond Markets and States:Polycentric Governance of Complex Economic Systems” Elinor Ostrom American Economic Review 100(3):

5. Natural Monopolies What if there are BIG economies of scale?
Large economies of scale are in effect high barriers to entry – tough to enter as a small competitor
Natural Monopolies

6. Monopsony What if there are FEW customers?
Not going to deal a lot with monposony

7. What if there are BARRIERS to ENTRY or EXIT?
Location (retail – if you have key locations, that creates a barrier to competitors)
Patents
Talent! Work place environment – best places to work
Network externalities
Regulation

8. Standardized Product, Low Barriers → Perfect Competition
Standardized Product, High Barriers → Monopoly, Oligopoly
Diversified Product, Low Barriers → Monopolistic Competition
Diversified Product, High Barriers → Monopoly, Oligopoly

9. Everywhere! Products Products
Find products that are SIMILAR to yours in type of goods/services.
Classify your group of products (commodity, credence, experience, common pool, other?)
Describe the market for the products – what is the elasticity of demand? Who has more power, producers or consumers?