Market Structures
Economics Chapter 7
Agenda 10/27
1. CBM # 4
2. Types of Market Structures
3. Group Activity: Market Structure Case Studies
Objective: We will understand the characteristics
of competitive and uncompetitive markets when it
comes to prices.
Market Structures
• Market Structures – degree of competition among producers,
depends upon:
• Number of producers -- helps determine the level of competition
more producers = more competition
• Similarity of products – degree to which producers in a market are
similar. The more similar, the greater the competition
• Ease of entry -- markets that are easy to enter are the most
competitive
• Control over prices -- ability to influence prices = market power
the more competitive the market the less market power individual
businesses have
• Nobody Sleeps in Economics Class!!!!
Perfect Competition
•
•
•
•
•
•
Many producers and consumers
Identical products
Easy entry into market
No control over prices
Prices determined by supply & demand
Consumers have easy access to information
about products and prices
• Producers are forced to be efficient
• Consumers pay equilibrium price
Monopolistic Competition
• Many producers provide similar but varied
goods
– Price competition
– Non price competition – differentiation
– Markets remain competitive
• Examples:
– Restaurants
– Plumbers
– Health clubs
– Hairdressers
Oligopoly
• Small number of producers provide similar but not
identical goods
• Producers have some control over prices – often set in
response to decisions of other producers
• Industry dominated by a few firms producing similar
products
• Bigger producers have advantage over smaller producers –
economies of scale
• Collusion – producers make agreements
on production levels and pricing
• Cartels – set production levels and
prices for specific products, example
OPEC -- organization of petroleum
exporting countries
• Examples – airlines, automobiles, soda
Monopoly
• Market in which a single producer provides unique
product
• Producers have:
–
–
–
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Significant control over prices
Less incentive to satisfy consumers
High Barriers to entering the market
Anti-Trust Laws stop Monopolies
• Most Monopolies are illegal
• Types of Monopolies:
1. Resource monopolies – one producer controls a natural
resource
2. Government created – protect inventors of products –
copyrights/patents , National Park Service, licenses
3. Natural monopolies – single firm provides good or service
more efficiently and at a lower cost – utility companies, cable
Economies of Scale
• Economies of scale: greater efficiency and cost
savings that result from increased production
• Usually associated with natural monopolies
• Examples: cost of
supplying water, cable
company operating in
neighborhood
Anti-Trust Laws
• United States antitrust law prohibits anticompetitive behavior – monopoly
• Encourage competition in the marketplace
• Make illegal certain practices deemed to hurt
businesses or consumers or both
• Sherman Antitrust Act – limits cartels and
monopolies – response to John D Rockefeller’s
Standard Oil monopoly (1911)
Market Failures
• Occur when markets do not allocate goods
and services efficiently:
Monopoly, Oligopoly and Monopolistic
Competition are all examples of Market
Failure
How else can a market fail???
Externalities & Public Goods
Externalities and Public Goods
Externalities – things that affect someone other than producer or
consumer; spillover effects, either costs or benefits, resulting from the
actions of companies or individuals
Examples:
•
factory dumps chemical waste into a river, people downstream get sick
•
neighbor plants a new flower garden, results are pleasing to you
Public Goods – good available for everyone – regardless of ability to pay
(opposite of private goods)
goods and services that are not provided by the market system because of
the difficulty of getting people who use them to pay for their use.
Examples:
•
Streetlights and sidewalks
•
fire and police services, national defense, public parks
Private firms do not provide us with these public goods because they have
no way to make the people who benefit from them pay for them.
Market Structures – Case Studies
• Class Activity – Groups of 4, examine case
studies, create posters and present findings to
class
Market Structures
Perfect
Competition
Pure
Monopoly
Monopolistic Competition
Oligopoly
Monopoly
The further right on the scale, the greater the degree of monopoly power exercised by the firm.
Perfect Competition
Monopolistic
Competition
Oligopoly
Monopoly