Microeconomics
MARKET STRUCTURES
Four Types of Competition
 Perfect Competition
 Monopolistic Competition
 Oligopoly
 Monopoly
Key Terms
 Commodity - PC
 Economy of Scale - M
 Franchise - M
 Differentiation - O
 Collusion - O
 Cartel – O
 Regulation - MC
 Merger - MC
commodity
 Product that is the same no matter who
produces it
Economy of scale
 Factors that cause a producer’s average cost
per unit to fall as output rises
franchise
 Right to sell a G/S in an exclusive market
differentiation
 Making a product different from other similar
products
collusion
 Agreement among firms to divide market, set
prices, or limit production
cartel
 Formal organization of producers that agree
to coordinate prices and production
O.P.E.C. –
Organization of
Petroleum Exporting
Countries
regulation
 Government intervention in a market that
affects the production of a good
merger
 Combination of 2 or more companies into a
single firm
3 types of mergers
V
e C
Horizontal
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c
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m
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Altering Competition
 Price Fix – agreement among firms to charge
one price for the same good
 Price War – series of competitive price cuts
that lowers the market price below cost of
production
Market Structure Table
firms
PC
MC
O
M
goods
price
barriers
costs
regulation example graph
Comparing Market Structures
 Category Description
 Numbers of firms – amount of choice for the
consumer
 Variety of goods – amount of difference in brands
 Control over prices – influence each firm has on
the market
 Barriers to entry/exit – cost of production, effects
of company on the market
Comparing Market Structures
 Category Description
 Start-up costs – type of G/S, knowledge and cost
to produce first unit
 Regulation – amount of government intervention,
how many rules, licensing, subsidies
 Example – G/S in that type of market place
 Demand curve – compared to a market demand
Market Demand Curve
$
S
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D
Q
Perfect Competition
 Many, virtually unlimited
 None, commodity
 None, too many choices for individuals, firms
 None, low costs, easy to make, no effect
 Low, inexpensive lay-out
 None, safe, high quality
 Tomatoes, craft show
Perfect Competition
$
Firm Demand Curve
S
E
D
Q
Monopolistic Competition
 Many firms
 Differentiated products
 Little price control
 Small knowledge-base
 Production, Distribution, Final G/S
 Relatively low, flat marginal returns
 Minimal regulation
 Clothing, toiletries, autos
Monopolistic Competition
$
S
E
Firm Demand
D
Q
Oligopoly
 Few firms
 Differentiated products
 Some control over prices, market control
 Specialized knowledge
 Production, Distribution, G/S
 High start-up costs, good marginal returns
 Much regulation
 Phone, airlines, banking, entertainment
Oligopoly
$
S
Firm
Demand
D
Q
Monopoly
 One firm
 No variety of good, only one in market
 Complete price control, unregulated
 No new competition, can’t leave industry
 High costs, economy of scale
 Public corporation
 Licensing, pricing, subsidized
 Utilities
Monopoly
$
S
E
Firm
Demand
D
Q