Topic 7-Market Structure Notes 09

Topic 7
Competition, Market
Structures, & the Role of
Topics 7 & 8: Day 1
Warm-UpWhat do you think a market structure is?
 What types of market structures do we have in
our economy?
 Pizza Activity
 Handout Homework
Topic 7 & 8 HW-due
Topic 7 & 8 Current
Event-due (12/17)
Topic 7 & 8 Test-(12/17)
Market Structure:
The type & degree of competition
that exists among companies in a
certain industry
Barriers to
Pure (Perfect) Competition
Simplest market structure
Four Conditions of Perfect Competition:
buyers and sellers participate in the market
Identical products
brand names
Same quality
No need to advertise
and sellers are well informed about the products
 No barriers to entry (can enter and exit freely)
Perfect Competition
Supply and demand determine price
A lot of competition between firms
(businesses in the same industry)
Prices are usually kept low due to competition
Imperfect Competition
If one of the 4 conditions (of
perfect competition) is not met you
Monopolistic Competition, a
monopoly, or an oligopoly
Monopolistic Competition
 Many companies compete in an open market to
sell similar but NOT identical products
 Monopolizing a Small part of the market
 Four Characteristics of Monopolistic Competition:
 Many firms
 Few artificial barriers to entry
 Slight control over prices (slight price
 Differentiated products leads to NON-PRICE
competition (Location, advertising, packaging)
Differences Between Monopolistic
Competition and Perfect Competition
Difference between perfect and
monopolistic competition is that
monopolistically competitive firms sell
goods and services similar enough to be
substituted for one another.
Non-Price Competition
Catchy slogans
Product Differentiation
Pizza Activity
Topics 7 & 8: Day 2
What are non-price factors associated with consumer
What is the main difference between Monopolistic
Competition and Perfect Competition?
Notes-Oligopoly & Monopoly
Market Structure Matching worksheet
Ipod Reading
Market Structure Matrix
Key Terms
Cartel: group of firms that gets together to make
output & price decisions
Firms join to increase their market power
Collusion: an agreement among members to set
prices & production levels
Price War: competitors cut their prices very low
to win business
Price fixing: agreement among firms to sell at the
same or very similar prices
•Some influence on Price:
decision mainly based on
•A LOT of competition
between firms
•Can Lead To: Price
leadership; Price wars;
Collusion; Cartel
Major Points:
•Standardized Oligopoly:
identical goods produced
•Differentiated Oligopoly:
products are differentiated
•Generally Higher Prices
Price Wars
Hess vs. USA gas in
Ballston Spa
Hess $2.79
USA $ 2.69
Hess $2.68
USA $ 2.67
Hess $2.67
USA $ 2.67
No Competition-No other firms
Extensive control in the market
High Prices
Four Types of Monopolies
 Natural
 Geographic
 Technological
 Governmental
Natural Monopolies
A monopoly that occurs naturally
Ex. Public utilities, franchise, regulation,
economies of scale
 Telephone
 Public transportation
Geographic Monopoly
Occurs because of
isolation or abundance
of a natural resource
Government Monopoly
Involves products that private industry
may not adequately provide
 Ex.
Gov’t monopoly on research
marijuana; FAA bills that protect gov’t
workers from competition; postal system;
Technological Monopoly
• New invention or technique – no
competitors yet OR patents or
Dangers of Monopolies
Can cause artificial shortages
High prices
Denies benefit of competition
Not dependent on the market
Can gain political power