SSEMI4 The student will explain the
organization and role of business and
analyze the four types of market structures
in the U.S. economy.
c. Identify the basic characteristics of (1)
monopoly, (2) oligopoly, (3) monopolistic
competition, and (4) pure competition.
Competition, Market
Structures, and the Role of
Government
Market Structures
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•
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What is the primary aim/goal of businesses?
To maximize profits
What is competition?
Striving against others to reach an objective
What are market structures?
• We are NOT talking about economic
systems like command, market, mixed or
traditional.
– All of the market structures that we will learn
about in this standard can be found within the
American mixed economy.
4 Types of Market Structures
1. Pure/Perfect Competition: a market with
fair competition and no government or
non-economic factors dictating price,
supply or demand.
1.
2.
3.
4.
Large number of buyers and sellers
Identical products (think substitutes)
Well informed buyers and sellers
No barriers to entering market
More Competition
Less Competition
Pure/Perfect Competition
Many buyer/sellers +
Identical Products
Monopolistic Competition
• Meets all condition of perfect competition
except for having identical products.
– Characterized by product differentiation
• Monopolistic competitors use non-price
competition
– Advertising, giveaways, or other promotions
More Competition
Less Competition
Monopolistic Competition
Gap
Levis
Lucky
Same as pure competition except for product differentiation
Monopolistic Competition
Are these shampoos/conditioners different?
Pantene $14.50
Frederic Fekkai $54
Monopolistic Competition
Are these mascaras different?
Maybelline
Sisley
$4
$43
Oligopoly
• A few very large sellers dominate the industry
• Oligopolists act interdependently by lowering
prices soon after the first seller announces a price
cut or offering new products after another firm
does
– E.g., car companies all offering 0% financing or
introducing a similar model after a competitor does
• Engage in price wars
• Collusion: formally agree to set prices (illegal;
doesn’t happen often)
More Competition
Less Competition
Oligopoly
Ipod
Zune
Oligopoly
Few producers control supply and price
Coca-Cola Classic
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Coca-Cola classic
Sprite
Dasani
Barq's
Dannon
Nestea
Rockstar
Evian
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Fanta
Fresca
Minute Maid
Mr. Pibb
Powerade
Seagrams Ginger Ale &
Mixers
• TAB
Pepsi-co
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Aquafina
Pepsi
Mountain Dew
Sierra Mist
Sobe
Lipton Brisk Tea
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MUG Root Beer
Slice
Gatorade
Dole Juice
Tropicana
Cadbury Schweppes
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7 Up
Canada Dry
Clamato
Dr Pepper
Hawaiian
Punch
• Mott's
• Orangina
• Snapple
Toyota
• Toyota
• Scion
• Lexus
Chrysler
• Chrysler
• Jeep
• Dodge
General Motors
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Chevrolet
Buick
Pontiac
GMC
Saturn
Hummer
SAAB
Cadillac
Monopoly
• Only one seller of a particular product
• Few monopolies in our economy
Monopoly
• One seller dominates the market with no
close substitutes
• Barriers prevent other firms from entering
market
• Monopoly is able to dictate price & output
More Competition
Less Competition
Monopoly
• Natural Monopoly efficient production by
a single supplier
Monopoly
• Geographic Monopoly
- small town or isolated
location
Monopoly
Technological Monopoly new invention
–
Patent: exclusive right for
17 years
Segway
Monopoly
Technological Monopoly
–
Copyright: lifetime + 50
years
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Monopoly
Government Monopoly
- government owned
businesses
• But is this a true
monopoly? Does
USPS have
competition?
SSEMI4 The student will explain the
organization and role of business and
analyze the four types of market
structures in the U.S. economy.
a. Compare and contrast three forms of
business organization—sole proprietorship,
partnership, and corporation.
Sole Proprietorships
Sole proprietorships are easy to start,
but owners have unlimited liability.
Sole proprietorships are businesses owned and run by a
single person who has the rights to all profits and unlimited
liability for all debts of the firm
The most common form of business organization in the U.S. is
the sole proprietorship or proprietorship.
Sole Proprietorship-Advantages
– The easiest form of business to start—
few requirements
– Decisions do not require approval from
“higher ups.”
– Keep all profits
– Does not pay separate business income
taxes; business is not a separate entity
– Easy to get out of business
– Psychological factor of being own boss
Business owner is
Sole Proprietorship-Disadvantages
personally and fully
– Difficult to raise capital responsible for all losses
and debts of the business
– Size and efficiency
– Owner has unlimited liability.
– May hire several employees to stay open
– Cost of carrying minimum inventory
situation in which a firm
– Often
has
limited
managerial
skills
ceases to exist when an
owneremployers
dies, quits, or can offer more fringe
– Larger
sells the business
benefits.
– Limited life of business
– Difficult to attract qualified employees
Partnerships
• Unincorporated business owned and operated
by two or more people who share the profits
and responsibility for debts
• In a partnership, each partner fully shares
responsibility for the operation of the business
and all profits or losses.
• Partnerships are the least numerous
form of business organization in the
United States.
• A partnership has many of the same advantages
and disadvantages of a sole proprietor.
Partnerships—Two Types
– General partnership: form of
partnership where all partners are equally
responsible for management and debts
– Limited partnership: form of
partnership where one or more partners
are not active in the daily running of the
business and have limited responsibility
for debts
Partnerships--Advantages
– Ease of startup
– Formal legal papers called articles of
partnership are usually written.
– Ease of management/varied expertise
– Lack of special taxes
– Easier to attract capital than a proprietorship
– Easier to find good employees than a
proprietorship
– More efficient operations that come with
increased size
Partnerships--Disadvantages
– In a general partnership, each partner is
responsible for acts of all partners.
– In a limited partnership, limited partner
loses original investment. General
partners must make up the rest of the loss.
– Limited life
– Potential for conflict between partners
Corporations
• Corporations are one of the most
important forms of business and can
easily raise large amounts of financial
capital.
• A corporation is a formal, legal entity all
its own.
• Individuals who wish to incorporate must
file with the national government and state
where the business will have its
headquarters.
Corporations-Advantages
Ease of raising capital—sell more stock
or issue bonds
• The amount of money borrowed on a
bond is called the principal.
• Corporations pay interest on this
borrowed money.
Corporations-Advantages
– Owners have limited liability
– Directors can hire professional managers
to run daily operations.
– Unlimited life
– Ease of transferring ownership
Corporations-Disadvantages
– Detailed records need to be kept for
payment of taxes.
– Double taxation of corporate profits
– Difficulty and expense to get a corporate
charter
Corporations-Disadvantages
• Owners or shareholders have little voice in
business operations.
• Subject to more government regulations
– Publicly held corporations must register with
the federal Securities and Exchange
Commission, established in 1934,
to regulate the sale of stock.