What is perfect competition?
What is a monopolistic competition?
How do seller differentiate their products under monopolistic competition?


– An ideal market structure in which buyers, or consumers, and
Seller(producers), each compete directly and fully under the laws of supply and demand.
Many Buyer and Seller
– No one single buy or seller in a market has enough power to control demand, price, or supply
– Buyers and sellers must act independently
 Identical Products
– Sellers offer identical products
– Buyers must make purchasing decisions
– Non identical product
» Monopoly – 1 seller controls all production of a good and service

 Informed Buyers
– Buyers a knowledgeable about a product
– $ and quality of goods and services
 Easy Market Entry and Exit
– Leave = No Profit
– Entry = Profit
 PERFECT COMP.
Model
– Ideal Completive
Market Structure
– (See over head)


– Sellers offer different, rather then identical, products.
» Similarities- both (B) and
(S) compete under the law of supply and demand
» Both (B) and (S) act independently of each other
Product Differentiation
– Seller point out the differences between each other trying to set them selves apart
 Non Price Competition
– How seller differentiate products
– Compete on the basis other than price
» Ex jeans
 Profit
– Main goal is to increase (P)
» See Graph

 What four conditions must exist for a market to be perfectly competitive?
 How does monopolistic competition differ from perfect competition?
 How do sellers in monopolistic competition compete with one another?

 Objectives
– How is an oligopoly structured?
– What is a monopoly?



Oligopolies
– Only a few sellers
– Sellers offer identical or similar products
– Other sellers cannot enter the market easily
Oligopolies at Work
– Non price Competition
» Control Price (Cereal)
– Interdependent Pricing
» Dependent upon $ of competitors
» Price leadership- biggest seller sets the price
» Price War- sellers undercut each other to gain a share of the market
– Collusion
» Sellers secretly agree to set production levels or price
–
Cartels
» Companies openly organize a system of price setting and market sharing

– Single Seller
– No close substitute goods are available
– Other sellers cannot enter the market easily
 Types of Monopolies
– Natural Monopolies
» Single seller that makes good and services most efficiently
» Economies of Scale

Seller’s large scale, or size helps it use all resources more efficiently and economically than if divided

 Geographic Monopolies
– Market’s potential profit is so limited by its geographic location that only a single seller enters the market
 Technological Monopolies
– Producers develop new technology that enables the creation of a new product or change the ways an exiting product is mad
» Patent
 Government Monopolies
– Government is the sole seller of a product
– Provides public goods

 @ Work
– Can’t charge any price they want:
 3 Forces limit the seller’s control over price:
– Consumer Demand
– Potential Competition
– Government
Regulations

 Compare the Characteristics of oligopolies and monopolies.
 What are the four main types of monopolies? Under what conditions do they tend to arise?
 Identify the factors that affect price in oligopolies and monopolies.



Key Terms of Era of Big
Business
– Trusts- group of companies that combine to eliminate competition in an industry
– Laissez-faire- “let {the people} do {as they will}
» No government involvement in business
Antitrust Legislation
– Act designed to regulate
Big Business