Agribusiness Library
LESSON L060093: TYPES OF MARKETS
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Objectives
1. Compare and contrast homogeneous products and
differentiated products.
2. Distinguish between the four basic market
structures.
3. Define merger, and analyze the types of mergers.
4. Explain the history of major antitrust laws, and
describe punishable monopolistic practices.
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Key Terms
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acquisition
antitrust laws
conglomeration
differentiated products
grade
homogeneous products
horizontal merger
market-extension merger
market share
market structure
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merger
monopolistic competition
monopoly
oligopoly
perfect competition
price discrimination
product-extension merger
target market
tying
vertical merger
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How are homogeneous and differentiated
products similar? How are they different?
Markets are comprised of homogeneous
and differentiated products.
A. Homogeneous products
(commodities) are those products
that are the same no matter who
produces them.
1. They are marketed at the same price by grade—an
established level of quality.
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How are homogeneous and differentiated
products similar? How are they different?
2. The price homogeneous products sell for changes on a
daily basis with the fluctuation of global supply and
demand.
3. Examples of homogeneous products include cotton,
soybeans, corn, ethanol, aluminum, crude oil, and copper.
4. As product standardization occurs in a product’s life
cycle, products that once sold for a premium now sell at
the same price in all marketplaces.
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How are homogeneous and differentiated
products similar? How are they different?
B. Differentiated products are
those products that only differ
slightly from their competition
and sell at different prices in
different markets. Often the only
difference between products
—even though they can have
significant differences in price—is
their packaging or advertising.
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How are homogeneous and differentiated
products similar? How are they different?
1. Product differentiation is created to make a product more
attractive to its target market. In other words,
differentiation creates competitive advantage where a
sense of value is created for the customer.
2. A target market is a clearly defined group of consumers
that a company aims its products toward.
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How are homogeneous and differentiated
products similar? How are they different?
3. Differentiation can be made in terms of:
a. Quality
b. Features
c. Design
d. Sales promotions
e. Advertising
f. Availability
g. Customer knowledge
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How are homogeneous and differentiated
products similar? How are they different?
4. Examples of differentiated products include electronics and
food products.
5. Often a product will be produced at one facility and then
sold under different brand names by several companies—
all at different prices.
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What are the four basic market structures?
There are four basic market structures.
Market structure is the amount of competition within a
market. To distinguish between the market structures,
consider the following elements:
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number of producers and consumers
amount of business each company does within the market
types of products being traded
amount of information made available between companies
and consumers.
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What are the four basic market structures?
The market structures—from least to most competitive—
are perfect competition, monopolistic competition,
oligopoly, and monopoly.
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What are the four basic market structures?
A. Perfect competition describes a market where there
are many small firms producing homogeneous goods.
There are many buyers and many sellers within the
market.
1. It is easy for a business to enter into pure competition.
2. It is relatively easy to acquire information as a
competitive business or as a consumer.
3. Businesses are typically able to sell their
products (e.g., wheat, silver, and hogs)
in a way to generate profits.
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What are the four basic market structures?
B. Monopolistic competition occurs in a market where
there are a large number of businesses controlling a
small portion of the market share—portion or
percentage of a total market that a business serves.
1. Differentiated products are sold in a monopolistic
competition.
2. It is easy for a business to enter into monopolistic
competition and to have some control over the price of
its product.
3. Examples include restaurants, clothing, and grocery
products.
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What are the four basic market structures?
C. An oligopoly is a market dominated by a small
number of businesses. Since the playing field is so
small, each business in the market is keenly aware of
the actions of its competitors.
1. It is difficult to enter into an oligopic market.
2. When conducting strategic planning, those businesses in
the oligopoly must take the actions and responses of
other businesses in the market into consideration.
Because of this, the risk of fraud is high.
3. Examples include telecommunications,
automobiles, and aeronautics.
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What are the four basic market structures?
D. A monopoly occurs if there is only one provider for a
product. Because there is no competition (or very
little), the company has significant control over price
and availability.
1. Monopolies can occur naturally when mergers take
place.
2. A monopoly is illegal when it does not allow any
competition to enter the marketplace.
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What are the four basic market structures?
D. A monopoly (cont’d)
3. Examples of businesses or industries that have been in
monopolies include:
a. The salt commission (China—758)
b. British East India Company (1600)
c. Standard Oil (1911)
d. Major League Baseball (1922)
e. Microsoft (2001)
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What is a merger?
What are the types of mergers?
A merger is the combining of
two companies into one
company. When companies
merge, they may combine to
create a new company name
(dropping both of the old
names), or they may continue
to operate under their original
names and be owned by a
common company.
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What is a merger?
What are the types of mergers?
A similar but slightly different action in the business
world is an acquisition. An acquisition happens
when a company completely takes another company
over. The company being taken over takes on the
purchasing company’s name. There are five types of
mergers.
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What is a merger?
What are the types of mergers?
A. A horizontal merger is the consolidation of two
competing companies. Before merging, the companies
sell the same product to customers in the same
market. An example of a horizontal merger is two
T-shirt production companies in the same city
merging.
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What is a merger?
What are the types of mergers?
B. A vertical merger is a customer and a company
joining forces or a supplier and a company
consolidating. An example of a vertical merger is a
cotton processing company and a T-shirt production
company teaming up.
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What is a merger?
What are the types of mergers?
C. A market-extension merger is two companies that
sell the same products in different markets joining
forces. When this type of merger occurs, the new
company is able to cover a larger market area. An
example of a market-extension merger is two T-shirt
production companies in two different cities merging.
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What is a merger?
What are the types of mergers?
D. A product-extension merger is two companies that
sell different yet related products in the same market
joining forces. An example of a product-extension
merger is a T-shirt production company merging with
a T-shirt sales shop in the same city.
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What is a merger?
What are the types of mergers?
E. A conglomeration forms if two companies with no
common interests team up. The two companies may
have shared marketing, production, or distribution
channels prior to the merge. An example of a
conglomeration merger is a T-shirt production
company merging with a granola bar production
company.
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What is the history of antitrust laws?
What monopolistic practices are punishable by law?
The United States has laws in place at the state and
federal levels to prevent monopolies. These
preventative laws, which apply to individuals and
businesses, are called antitrust laws. They are in
place so markets stay competitive.
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What is the history of antitrust laws?
What monopolistic practices are punishable by law?
A. The first documented antitrust law in the United States
went into effect in 1890. Before that, common law
ruled, and monopolies were not illegal. It was called
the Sherman Antitrust Act of 1890 and made it illegal
to try to restrain trade or to form a monopoly.
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What is the history of antitrust laws?
What monopolistic practices are punishable by law?
1. Section 1 of the Sherman Act states that the courts are
to interpret which contracts unfairly restrict trade.
2. Section 2 makes it illegal for a company or an
individual “to monopolize or to attempt to monopolize.”
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What is the history of antitrust laws?
What monopolistic practices are punishable by law?
B. In 1914, the Clayton Act was passed, bringing more
definition to antitrust laws, especially around mergers
and acquisitions. It outlaws things such as price
discrimination, tying, and mergers that “substantially…
lesson competition or…tend to create a monopoly.”
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What is the history of antitrust laws?
What monopolistic practices are punishable by law?
1. Price discrimination is the practice of charging different
customers different prices for the same product or service.
2. Tying is the practice of forcing someone who wants to buy a
product to purchase another product.
3. The Clayton Act also authorizes private antitrust suits and
triple damages as well as exempting labor organizations from
the antitrust laws.
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What is the history of antitrust laws?
What monopolistic practices are punishable by law?
C. Also in 1914, Congress established the Federal Trade
Commission (FTC). The FTC is able to interpret and
enforce the Federal Trade Commission Act’s antitrust
laws in a case-by-case basis.
D. The National Recovery Act (NRA) was a short-lived
program from 1933 to 1935. It strengthened trade
associations and raised prices, profits, and wages at
the same time.
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What is the history of antitrust laws?
What monopolistic practices are punishable by law?
E. The Robinson-Patman Act of 1936 sought to protect
small retailers against more efficient chain stores by
making it illegal to discount prices.
F. Some systems are exempt or partially exempt from
antitrust laws in the United States.
1.
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3.
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Labor unions
Professional baseball
Agricultural cooperatives
The National Football League
Newspapers
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Review
1. Define a homogeneous product and name one example.
2. Define a differentiated product and name one example.
3. What are the four basic market structures?
4. What are the different types of mergers?
5. Who established the Federal Trade Commission?
When was it established and why was it established?
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