Least (Level of competition)
Monopoly Oligopoly
Most
Monopolistic
Competition
Perfect
Competition
1 producer
2-5 producers
Full barriers & price control
Econ of
Scale?
Natural?
75%+ market share
Similar goods
~10-~100 producers
Many big names but product variety
Little price control, competitive
1000’s of producers
Virtually identical products
No price control
(S&D)

 What are some examples of industries that fall into each of these categories?
 List examples for each —be ready to defend or prove your choice.

 Almost all PC industries are with commodities —virtually identical products
 Generally lowest start up costs and barriers of any business
 Market forces determine prices —producers helpless to control the prices!
– Therefore, gov’t protections are sometimes needed for national security & self sufficiency
 Should gov’t set prices in PC for farmers?

 Products are different (Subway v.
McD’s) & substitutes are available— marketing strategies important
 Non-price competition —ex: extra service, bonus, 20% free!, different products…
 When firms raise prices consumers find substitutes? Highly competitive!!

Oligopoly
Characteristics


What results if Coke & Pepsi merged?
Government’s role is to keep the competitiveness of the oligopoly and block the merger.


Collusion & Price Fixing are illegal but it is hard to prove.
– Collusion & price fixing are usually short lived (cartels simulation)
Should Gov’t split the companies to change
Oligopolies to MC?

Oligopoly Collusion or Competition?

Monopoly Characteristics
 Unrestricted monopoly is bad for consumers & competition! Allowed when best for consumers — Natural Monopoly




When is a monopoly good?
Economies of scale —p. 157 read
– This determines the market structure of an industry!
Diminishing Returns —apply?
Patents —Used as incentives to innovate!
Franchise licenses —contracted or purchased monopolies

Roosevelt puts Trusts on a Diet!
Is Microsoft a Monopoly? Why sued?

 Why do some industries fall naturally into less competitive categories?
– Ex: Airlines, Autos, Cable, Power?
• (Economies of Scale)
 Should the government step in to make industries like Airlines more competitive? If so, would it work?
 Should Education be privatized or is it better off as a Natural Monopoly?

Minimum Wage & Unemployment