7-3: OTHER MARKET STRUCTURES
CHARACTERISTICS OF MONOPOLISTIC
COMPETITION
Monopolistic
competition:
when many
sellers offer
similar, but not
standardized
products
CHARACTERISTICS OF MONOPOLISTIC
COMPETITION (CONTINUED)
2
features of monopolistic competition
are product differentiation and
nonprice competition
 Product differentiation: attempt to
distinguish a product from similar
products
CHARACTERISTICS OF MONOPOLISTIC
COMPETITION (CONTINUED)
 Nonprice
competition: using
factors other than
low price, such as
style, service,
advertising, or
giveaways to
convince
consumers to buy
their products
4 CHARACTERISTICS OF MONOPOLISTIC
COMPETITION
1.
Many sellers and many buyers
 Meaningful competition exists
 Example: there are many
restaurants where you can buy a
hamburger
4 CHARACTERISTICS OF MONOPOLISTIC
COMPETITION (CONTINUED)
 2.
Similar but
differentiated
products
 Sellers try to
convince
consumers that
their product is
different from
that of the
competition
4 CHARACTERISTICS OF MONOPOLISTIC
COMPETITION (CONTINUED)
3.
Limited control of prices
 Product differentiation gives
producers limited control over
price
 Consumers will buy substitute
goods if the price goes too high
4 CHARACTERISTICS OF MONOPOLISTIC
COMPETITION (CONTINUED)
4.
Freedom to enter or exit the
market
 No huge barriers to enter a
monopolistically competitive
market
 When firms make a profit, other
firms enter the market and
increase competition
EXAMPLES OF MONOPOLISTIC
COMPETITION
Banks
Radio Stations
Clothing
Computers
Frozen Foods
Canned Goods
Sporting Goods
Fish and Seafood
Jewelry
Health Spas
Apparel Stores
Convenience Stores
OLIGOPOLY
 Definition:
market
structure in which
only a few sellers
offer a similar
product
 Few large firms
have a large
market share:
percent of total
sales in a market
OLIGOPOLY (CONTINUED)
There
are few firms in an oligopoly
due to high start-up costs—the
expenses that a new business faces
when it enters a market
4 CHARACTERISTICS OF OLIGOPOLIES
 1.
Few sellers and
many buyers
 Generally where
the 4 largest firms
control 40% of
the market
 Example:
breakfast cereal
industry
4 CHARACTERISTICS OF OLIGOPOLIES (CONTINUED)
2.
Standardized or differentiated products
 Products can be standard such as steel
They try to differentiate themselves
based on brand name, service, or
location
 Or, products can be differentiated such as
cereal and soft drinks
They use marketing strategies to
separate them from competitors
4 CHARACTERISTICS OF OLIGOPOLIES (CONTINUED)
3.
More control of prices
 Each firm had a large enough share
of the market that its decisions
about price and supply affect one
another
4 CHARACTERISTICS OF OLIGOPOLIES
(CONTINUED)
4.
Little freedom to enter or exit
market
 Set-up costs are high
 Firms have established brands,
making it hard for new firms to
enter the market successfully
OLIGOPOLY EXAMPLES

Soft drinks/Sodas:
 Coca-Cola (44%) – Coke, Sprite, Barq, Fanta, Mello
Yello, etc.

Pepsi (32%) – Pepsi, Mountain Dew, Mug, Slice, etc.

Cadbury Schweppes (16%) – Seven-Up, Dr. Pepper,
Schweppes, A & W, Canada Dry, Sunkist, Squirt, etc.
OLIGOPOLY EXAMPLES

CPU chips – Duopoly (an industry with only two firms):
Intel and AMD

Beer: Anheuser-Busch, Coors, Miller

Automobiles (GM, Chrysler, Toyota, etc.)
7-4: REGULATION AND
DEREGULATION TODAY
REGULATION
Definition:
set of rules or laws
designed to control business
behavior to promote competition
and protect consumers
ANTITRUST LEGISLATION
Definition:
laws that define
monopolies and give
government the power to
control them and break them up
TRUST
Trust:
when a group of firms are
combined to reduce competition
in an industry
Example: Standard Oil Company
MERGER
Merger:
when 2 firms join together
to become 1
 If a merger will eliminate
competition it will be denied by
the government
ENFORCING ANTITRUST LEGISLATION
The
FTC and the Department of
Justice are responsible for
enforcing antitrust laws
DEREGULATION
Definition:
reducing or removing
government control of a business
 Results in lower prices for
consumers and more competition
 Example: airline industry was
deregulated in 1978
QUESTIONS
 1.
In 2005, a major U.s. automaker announced a
new discount plan for its cars for the month of
June. It offered consumers the same price that
its employees paid for new cars. When the
automaker announced in early July that it was
extending the plan for another month, the
other 2 major U.S. automakers announced
similar plans. What market structure is
exhibited in this story and what specific
characteristics of that market structure does it
demonstrate?
 2.
Why do manufacturers of athletic shoes
spend money to sign up professional athletes
to wear and promote their shoes rather than
differentiating their products strictly on the
basis of physical characteristics such as design
and comfort?
 3.
The Telecommunications Act of 1996
included provisions to deregulate the cable
industry. In 2003, consumers complained
that cable rates had increased by 45% since
the law was passed. Only 5% of American
homes had a choice of more than 1 cable
provider in 2003. Those homes paid about
17% less than those with no choice of cable
provider. How effective had deregulation
been in the cable industry by 2003? Explain
your reasoning.