1.
2.
3.
4.
5.
6.
7.
8.
Explain the characteristics of perfect competition.
Understand the nature of monopolistic competition.
Describe the behavior & characteristics of oligopolies.
Identify several types of monopolies.
Discuss major antitrust legislation passed in the U.S.
Understand the need for limited government regulation
Explain the value of public disclosure.
Discuss the modifications to our free enterprise economy.
•
•
•
•
•
•
•
•
•
•
market structure
perfect competition
imperfect competition
monopolistic competition
product differentiation
nonprice competition
oligopoly
collusion
price fixing
monopoly
geographic monopoly
technological monopoly
government monopoly
• Market – any place where buyers &
sellers can exchange products
• Markets classified according to the
conditions that prevail in them
• Market structure – the nature & degree of
competition among firms operating in
the same industry
• There are 4 different types of markets
structures:
•A large # of well-informed independent
buyers & sellers who exchange identical
products
•None exist (closest ex. would be local
vegetable farmers), but it is used to
evaluate the other 3 structures
•Characterized by 5 major conditions: (LIST
THEM p. 164)
1)Large # of buyers &
sellers (B & S)
2)B & S deal in identical
products
 Because there is no
difference in quality, no
need to advertise or have
brand names
3)Each B & S acts
independently
4)B & S are wellinformed about
products & prices
5)B & S free to enter
into, conduct, or get
out of business
• A market structure that lacks 1
or more of perfect competition
conditions
• The other 3 market structures
fall under this category:
•Has all conditions of P.C. except identical
products
•Utilizes product differentiation – real or
imagined differences between competing
products in same industry
•Heavily relies on nonprice competition –
advertising, giveaways, promotional
campaigns to convince buyers their
product is better than others
• A few very large sellers
dominate the industry
• Products may be
differentiated (auto) or
standardized (steel)
• Many markets are
oligopolistic (Ex. soft drinks,
fast food, airlines, auto)
• Firms tend to act together
–May engage in collusion –
agreement to set prices or
cooperate with each other (Ex.
price-fixing – charging same or
similar price)
–Collusion is illegal
• Most firms compete on a
nonprice basis, by advertising or
making their products appear
better, making it more difficult
for rivals to respond quickly
•Only one seller of a particular
product
•Very few, if any exist (closest
would be cable & local phone
companies) because:
– Americans have disliked & tried
to outlaw them
– New technology creates
competition for monopolies
•Types of monopolies:
 Geographic monopoly – based on
absence of other sellers in a
geographic area (Ex. one gas station
in an area or drug store in a town)
 Technological monopoly – based on
ownership or control of a
manufacturing method, process, or
scientific advance (govt can issue
patents, copyrights)
 Government monopoly – owned &
operated by the govt (Ex. water use,
sale of alcohol, uranium-processing)
•Define:
trust
price discrimination
cease and desist order
public disclosure
• Much of early American economics
was dominated by Adam Smith’s
doctrine of laissez faire (“to let one
do”)
• Smith argued that a truly free
competitive market, operating with
minimal govt interference, would
bring about the greatest good for
society as a whole
• By the late 1800’s, competition in the
U.S. was weakening
• In the late 1800’s & early 1900’s,
U.S. govt passed laws to restrict
monopolies, combinations, &
trusts (T.R & Taft – the
“trustbusters”)
• Describe each of the following
(use diagram p. 179):
Sherman Antitrust Act
Clayton Antitrust Act
Federal Trade Commission Act
Robinson-Patman Act
• Today, govt has the power to
encourage competition & to
regulate monopolies that exist
for the public welfare
• Local & State govts regulate
monopolies such as cable, water
& electric utilities & telephones
• Many federal govt agencies have
been created to regulate many
businesses
Choose 6 of the 12
agencies on p. 180
that, in some way,
affect you
Write the acronym,
what it stands for,
and what it does
• Public disclosure attempts to prevent
market failures due to inadequate
information
• Examples:
– Content labels on food & medicines
– All corporations selling stock must
disclose financial & operating info
– Credit card companies must disclose
the terms of their agreements
– “Truth in advertising” laws prevent
false/misleading advertisements
• Our govts take part in economic
affairs for several reasons
• List the 4 reasons (p. 183)
• Today’s modified private
enterprise economy is a
mixture of different market
structures, different types of
business organizations &
varying degrees of govt
regulation