Market Structures
The nature and degree of competition
between firms operating in the same
industry.
INDUSTRY
(TYPE OF BUSINESS)
FIRM
FIRM
FIRM
(NAME OF BUSINESS)
(NAME OF BUSINESS)
(NAME OF BUSINESS)
STORE
STORE
STORE
STORE
(LOCATION OF
BUSINESS)
(LOCATION OF
BUSINESS)
(LOCATION OF
BUSINESS)
(LOCATION OF
BUSINESS)
Market Structures & Perfect Competition
Reflections
As a group pick an industry- retail
clothing stores, cereals, automobiles,
grocery stores, auto parts, retail shoe
stores.
 On the top half of page 20 develop a
tree map like the one we just did for
your industry.

•Different business types face different
amounts of competition.
•The level of competition can be described
by placing market structures along a
continuum.
Most amount of competition
Pure Competition
to
Monopolistic Competition
Least amount of competition
Oligopoly
Monopoly
•The amount of competition businesses
within an industry face determines the
prices and variety of goods available to
customers
Perfect Competition
Or
Pure Competition
Characteristics of Perfect
Competition

A large number of buyers and sellers
(Individual firms have no influence over price).
Firms can easily go into and get out of
business (low barriers).
 Firms are selling identical products

(Buyers won’t care who they buy from so
individual firms have no influence over price).

Buyers and sellers are knowledgeable
about the product’s price (A change in
price will immediately change the amounts
demanded and supplied for a firm).
Examples of Perfect
Competition
–Commodities
• Natural gas, oil or coal
• Agricultural products
–Grains
–Produce
–Livestock
On page 20, give at least 5 more
specific examples of commodities
(goods sold at the factor of production
level, that are identical between
producers, and that there is only one
market price)
 Go back to page 18. Divide the page
into fourths and draw me a picture that
illustrates one of the first 4 vocabulary
terms.

Monopoly
Characteristics of Monopolies
There is only one seller of the
product
 There has to be extreme
barriers to entry
 There are no close substitutes

Characteristics of Monopolies

The quantity available will be lower
and the price will be higher than in a
competitive market.
– But the monopolist must take the Law
of Demand into account.
Prices
up
Demand
down
BARRIERS TO ENTRY

Develop economies of
scale

Obtain a natural monopoly.

Obtain a patent on your product.

Obtain a government franchise
or license
Boeing Aircraft Factory
Barriers to Entry

Government owned business

Use non-competitive practices
(threats/ bribes).
Barriers to Entry

Limited demand.

Control all natural
resources needed
to make the
product.
Examples of Monopolies

Water Companies
– Each neighborhood has only one water
company serving it because it is more cost
effective (Natural Monopoly)

National sports leagues
– The Dallas Cowboys and the Texas
Rangers never have to worry about
competition because they have a franchise

Pharmaceuticals
– When a company develops a new drug it is
granted a patent for exclusive production
for up to 20 years.
Monopoly Reflection (page 22)
Directions: Copy the following, fill in the blanks and
answer the question.
 _______________ (choose a company from the
examples I gave you) is an example of a
monopoly. The barrier(s) that keeps competitors
out of this market are _______________________
__________________________________________

Government allows monopolies by granting
patents. Explain why government does this.

Go back to page 18 and draw a picture illustrating
one of the terms from section 2 vocabulary.
Monopolistic Competition
A market structure in which many firms sell products
that are SIMILAR but NOT IDENTICAL
Characteristics of
Monopolistic Competition
Large number of buyers and sellers
 Most firms are small
 It is easy to get into and out of this
industry (Start-up costs are low).
 Similar, not identical, product

(Substitutable goods between firms are
differentiated).
 Firms can raise prices (You can charge a
higher price for a differentiated product).
Non-Price Competition
Or Product Differentiation
Firms may:
 Make their product with an extra or new
feature
 Advertise heavily for name or product
recognition
 Choose a special location
 Provide a higher level of service
Examples of Monopolistic
Competition
Restaurants
 Clothing stores
 Gas stations
 Grocery stores
 Hairdressers

Monopolistic Competition and
Oligopoly Reflection
Divide page 24 in half
 On the top half, choose a product that
you regularly use and differentiate it –
come up with at least 5 ways to make it
different, better, more appealing to
customers so you can charge more for
it.
 Go back to page 18, draw a picture
illustrating one of terms 11-13.

Oligopoly
A market structure in which a few large firms
dominate
Characterisitics of Oligopoly:
 A few very large firms dominate this
industry
 There are many barriers to entry
– Cost advantages (large start-up costs or economies
of scale)
– Legal barriers (patents & licenses)
– Non-price competition (advertising)
– Illegal barriers (collusion, price fixing, cartels)


Pricing decisions by one firm affect all
other firms (price leadership)
Price wars common
Examples of Oligopoly
Airlines
 Cereal companies
 Soft drink companies
 Automobile manufacturers

Oligopoly Reflection
On the bottom half of page 24, complete
the following.
1. Name four industries that fit the
definition of oligopoly: a few large
firms dominating the market.
2. For two of those firms explain what
barriers from your notes are allowing
them to do so.
3. Go back to page 18 and draw a picture
of one of terms 14-18 (Oligopoly).
Four Types of Monopolies:
Natural
Government gives a company the
exclusive right to provide goods or
services within an area because the
costs to consumers are lowered by
having a single firm provide them (ex.
AMUD, Charter Cable).
Geographic Monopolies
There are no other businesses in the
immediate area to offer any competition
due to low demand or extreme isolation
(ex. Driftwood in Granbury).
Technological Monopolies
A firm or industry has created a new
product or process and obtains a patent
or copyright.(ex. Polaroid or
pharmaceutical firms)
Government Monopolies
A government owned business that
provides a product or service that
private firms do not adequately provide
(ex. US Post Office or Amtrak).