1. Chapter 7 Market Structures Industry=Market

2. Four Types of Market Structures  I. Perfect Competition  II. Monopolistic Competition  III. Oligopoly  IV. Monopoly

3. Four Features of a market: Four Features of a market:  1. Number of buyers & sellers  2. Product’s uniformity across suppliers  3. Ease of entry into the market  4. Forms of competition among firms and/or control over prices

4. I. Perfect Competition: I. Perfect Competition:  Perfect Competition: firms are competitive over price, nothing else matters.  Features of the Perfectly Competitive Market:  1. many buyers and sellers- each purchase only tiny fraction of the market. ex. Stock shares ex. Stock shares

5. Perfect Comp (cont) 2. standardized product or commodity (identical across producers) ex. bushel of wheat ex. bushel of wheat 3. ease of entry into the market- no barriers at all. 4. buyers and sellers are perfectly informed- (how many are sold, for what price, etc.)  Perfect Competition can’t really exist!

6. Commodity

7. Who wants to take the saltine challenge?

8. III. Monopolistic Competition:  1. Many buyers and sellers  2. Product uniformity: physical differences physical differences location location services services product image product image

9. Monopolistic Comp (cont)  3. low barriers to entry Easy to start up Easy to start up  4. much competition operate with excess capacity operate with excess capacity ex: funeral homes ex: funeral homes

10. Who wants to take the taste test?

11. In monopolistic competition products must differentiate because they are so similar

12. IV. Oligopoly  1. few sellers  2. some uniformity Differentiated products Undifferentiated products  3. difficult to enter market – economies of scale  4. some competition sellers are interdependent sellers are interdependent  Ex. autos, tobacco, oil

13. Undifferentiated Vs. Differentiated Vs.

14. Cartel  A group of firms that agree to act as a single monopolist  Illegal in the US

15. OPEC

16. Pablo Escobar

17. II. Monopoly Features of a monopoly: 1. only one seller of product - no close substitutes 2. Uniformity among product

18. Monopolies (cont) 3. Barriers to entry are high-  legal restrictions: utilities, USPO, lottery tickets  economies of scale- not enough demand to allow one firm to achieve economies of scale; high fixed, start-up costs  ex. airlines (high start up costs)

19. Monopolies (cont) 4. No competition may raise price without losing sales ability to set prices- known as market power ability to set prices- known as market power control of essential resources (often natural resources) control of essential resources (often natural resources) De Beers diamondsDe Beers diamonds PandasPandas  *True monopolies are rare.  Competition forces firms to be efficient.  Monopolies don’t always make a profit and they can lose money

20. 4 types  Natural  Technological  Geographic  Government

21. Natural Monopoly – nature of industry allows for only one company

22. Technological – i.e. patents and copyrights

23. Government – only the government does this job

24. Geographic Monopoly – population can only support one firm Cherokee Bowling Lanes

25. Anti-Trust Activity:  Attempt to prohibit efforts to monopolize markets in which competition is desirable

26. History of Anti-Trust Activity in the US  Sherman Anti-Trust Act (1890)- outlawed creation of trusts  Clayton Act (1914)- extended Sherman  Federal Trade Commission Act (1914)- federal agency to enforce laws

27. Competitive Trends in US:  Monopolies are not as much of an issue due to- anti-trust action anti-trust action technological change technological change international trade international trade deregulation: a reduction in government control over price and firm entry deregulation: a reduction in government control over price and firm entry

28. Mergers – two companies combine as one  3 types of mergers -horizontal merger -horizontal merger -vertical merger -vertical merger -conglomerate merger -conglomerate merger

29. Horizontal Merger Def: one firm combines with another that is similar in what is produced and

30. Vertical Merger Def: one firm combines with another that supplies its inputs and

31. Conglomerate Merger Def: One firm combines with another in a different industry and