MARKET STRUCTURES
What is a Market Structure?
▪ Market Structures, by book definition, is
the nature and degree of competition
among firms operating in the same
industry. More simply put, market
structures are the ways in which the
market places for specific products are
grouped together. Economists have
divided this into four groups: perfect
competition, monopolistic competition,
oligopoly, and monopoly.
▪ Each of you will create a spectrum of the
different types market structures that exist
in our economy.
▫ Pure Competition
▫ Monopolistic Competition
▫ Oligopoly
▫ Monopoly
What is a spectrum?
Pure
Competitio
n
Monopolistic
Competition
Oligopoly
Monopoly
Underneath each of the market Structures
you will need to give me information of each
structure.
What information will you
need?
▪ Explain/define the market Structure
▪ What are the market structures
characteristics?
▪ Profit Maximization (how do each of these
structures find the ways to maximize
profits when they produce the product?)
▪ 5 examples on your own
▪ Extra information: most of these structures
have unique information that I want you to
place on your assignment.
Which Structure(s)?
▪ Use your diagram to read about and
examine the 4 different types of market
structures.
▪ Tell me which structures apply to which of
the characteristics. (some have multiple
answers)
Chapter 7.2
▪ Use the Guided Reading page provided to
work your way through chapter 7 section
2. Answer all appropriate questions with
as much information as possible.
Market Failures
▪ When one of the following conditions are
significantly altered it creates a market
failure:
▫ Adequate competition must exist in all markets
▫ Buyers and sellers must be reasonably well-
informed about conditions and opportunities in
these markets
▫ Resources must be free to move from one
industry to another
▫ Prices must reasonably reflect the costs of
production.
Inadequate Competition
▪ Consequences of no competition
▫ Not using our resources efficiently
▫ Artificial shortages and higher prices
▫ Ability to influence politics by threatening to
leave a particular state
▫ Development of monopolies
▫ Both sides of the market
Inadequate Information
▪ Some information needs to find its way to
the consumers but is very difficult to
obtain; this creates a market failure.
▪ What experience from your life do you feel
like you received inadequate information
in the purchase of a product?
Resource Immobility
▪ Resources (land, labor, capital, and
entrepreneurs) must be flexible in order to
create an efficient economy
▪ Why must we as a labor force be “flexible”
when we are obtaining work?
Externalities
▪ Considered a market failure because costs and
benefits are not reflected in the market prices that
buyers and sellers pay for the original product
▪ Can be good (positive) or bad (negative)…
▫ Externality-unintended side effect that either
benefits or harms a third party not involved in the
activity that caused it
Examples of Externalities:
Positive or Negative?????
▪ A new factory opens up on 620; there are a lot of
smoke stacks coming out of the factory;
▪ The government implements new grants to help
more people move on to a higher education.
▪ The major Ford cars development center opens in
the south Austin area.
▪ A brand new highway going from downtown through
Lakeway is developed.
▪ A new neighbor moves in next door and seems to
enjoy playing music exceptionally loud.
Public Goods
▪ Products that are collectively consumed
by everyone, and whose use by one
individual does not diminish the
satisfaction or value available to others
▪ What are some public goods that we
experience pretty much on a daily
basis?(i.e. community parks, fire
departments, the armed forces)
▪ Public goods illustrates that while the
market is very successful in satisfying
individual wants and needs, it may fail to
satisfy them on a collective basis.
▪ Write down in your own words what you
believe the role of the government should
be in society. Think about this locally,
state-wide, and federally.
The Role of the Government
▪ To promote and encourage competition
▪ To prevent monopolies and reduce the
costs of imperfect competition wherever
possible
▪ To regulate industries in which a
monopoly is clearly in the best interest of
the public
▪ To fulfill the need for public goods
Trusts
▪ A legally formed combination of
corporations or companies; was done to
take power over a market, basically
creating a monopoly.
▪ Government created antitrust legislation in
order to prevent the market failure of
“inadequate competition”
Antitrust Legislation
▪ Sherman Antitrust Act (1890)→ first law
against monopolies which sought to protect
trade and commerce.
▪ Clayton Antitrust Act (1914)→ outlawed price
discrimination (charging different prices to
different customers)
▪ Federal Trade Commission Act (1914)→
right to cease and desist orders (requires a
company to stop an unfair business practice
that reduces or limits competition among
firms)
▪ Robinson-Patman Act(1936) → Strengthen
the Clayton Act, especially price
discrimination.
Government Regulation
▪ When the government knows something
to be necessary and instead of shutting
the business down, they have many rules
to follow
▪ Goal of regulation is to set the same level
of price and service that would exist under
competition
Public Disclosure
▪ The requirement that businesses reveal
information to the public
▪ The purpose is to provide the market
(buyers and sellers) with enough
information to prevent market failures due
to “inadequate information”
▪ Examples: Food and Drug Administration
and the Federal Deposit Insurance
Corporation (FDIC)
The Internet and its
Effects on Disclosure
▪ How has the internet become such a huge
part in the disclosure of information to the
public? Think about cost, availability,
etc.(6)
Topics
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Perfect Competition
Monopolistic Competition
Oligopoly
Monopoly
Market Failure: inadequate competition
Market Failure: inadequate information
Market Failure: Resource immobility
Market Failure: Externalities
Public Goods
Government Regulation (legislation, etc.)
Public Disclosure