WARM UP 6
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5.
Why do you think that competition is
important?
What do consumers gain as a result of
competition?
Explain how supply and demand determine
equilibrium price and quantity produced.
What is the purpose of a price ceiling? Does it
create a shortage or a surplus?
What is the purpose of a price floor? Does it
create a shortage or a surplus?
Welcome Back! Please take out your worksheet on
Supply & Demand so we can go over it together.
MARKET STRUCTURES
Perfect Competition, Monopolistic Competition,
Oligopoly, & Monopoly
MARKET STRUCTURES
Industry: consists of all firms (businesses) making
similar or identical products.
 An industry’s market structure depends on the
number of firms in the industry and how they
compete.
 Market Power: how much control that a business has
over manipulating the price by manipulating the
supply.
 Barriers to Entry: Factors that prevent or make it
difficult for new firms to enter a market.


Start up cost, location(natural resources), competition, gov.
power, patents, etc.
FOUR BASIC MARKET STRUCTURES
Market Power
PERFECT (PURE)COMPETITION:
Perfect competition happens when
many small firms compete against
each other.
 All producers essentially make the
same product (homogenous)
 No barriers to enter the market
 There are so many firms
individual firms cannot impact
the price of the good.


No market power


Price Takers: Sellers take what the buyers
will pay
Agricultural markets are the closest
representation of perfectly competitive
markets.
MONOPOLISTIC COMPETITION:
Many competing firms
 Slightly differentiated product


Close substitutes available
Few barriers to enter the market
 Some market power
 Rely on advertisement
 Profit maximizers


Toothpastes, toilet papers,
clothing companies,
restaurants
OLIGOPOLY
Small number of firms
 Lots of market power
 Slightly differentiated products
 Many barriers to enter
 Mutually Independent:
individual producers can impact the
market.
 Strategic pricing/ marketing
 Tactics Oligopolies Sometimes Use:

Collusion: secret agreement between
firms to limit competition & gain
unfair market advantages
 Predatory Pricing: deliberately
lowering prices to force competition
out of the market.

MONOPOLY



ONE firm
Unique product
Total market power = Price Maker



Reasons for the existence of a monopoly:


can be very harmful for consumers
Anti-Trust Laws- gov. regulations to control the powers of monopolies
Extreme barriers to enter, high cost, gov. licensing, gov. grants, gov.
patents, brand loyalty, advertising
Natural Monopoly: firm that produces the entire output of a
market at a lower cost than if there were several firms.

Ex) Utilities (Water, Power, Natural Gas)
Vertical
Integration
Horizontal Integration