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Chapter 7

• Terms used to describe the level of
competition in a market.
• Perfect Competition
• Imperfect Competition
• Monopoly
• Monopolistic Competition
• Oligopoly

• To determine the structure a market has, we look at a few key areas:
– How many producers?
– Are the products in the market identical, differentiated, or unique?
– How much market power (ability to control/impact price) does 1 producer have?
– Are there barriers to entry? If so, how difficult is it to enter the market?

1. Many sellers:
– A large number of sellers ensures that no one controls prices.
– No single producer can impact prices

2. Standardized/Identical product:
– All products are essentially the same.

3. Freedom to enter and exit markets:
– Producers can enter or exit the market with no interference.

• Monopoly
– Types of monopoly
• Monopolistic competition
• Oligopoly

1. Only One Seller:
– A single business controls the supply of a product that has no close substitutes.

2. A Restricted, Regulated
Market:
– Govt. regulations or other barriers to entry keep other firms out of the market.

3. Control of Prices:
– Monopolies act as price
makers because they sell products that have no close substitutes and they face no competition.

• Natural monopoly:
– Occurs when the costs of production are lowest with only one producer.
– May occur because of economies of scale – the avg. cost of production falls as the producer grows larger

• Government monopoly:
– exists when the govt. either owns and runs the business or authorizes only one producer.

• Technological monopoly:
– occurs when a firm controls a manufacturing method, invention, or type of technology.

• Geographic monopoly:
– Exists when there are no other producers within a certain region.

1. Many buyers and sellers:
– Fewer sellers than perfect comp., but still enough for meaningful competition.

2. Similar but differentiated products:
– Use brand name and advertising to differentiate from competitors
Big N’ Tasty Whopper Classic

3. Limited Control of
Price:
– Product differentiation gives producers some but little control over what they charge.

4. Freedom to Enter or Exit Market:
– Does not require huge amounts of capital; can sell off equipment and other assets if doing poorly

https://www.youtube.com/watch?v=29I0w6TKKmE

https://www.youtube.com/watch?v=29I0w6TKKmE

Relatively Few Sellers
- A few firms dominate the market
- Exists if top 4 firms control at least 40% of market
Oligopoly

2. Can have Identical or
Differentiated Products:
– Identical: steel, aluminum, glass
– Diff.: cereals, soft drinks
Oligopoly

Oligopoly
3. More control of prices:
– Because there are few sellers, they have more control than in monopolistic comp.
– However, price changes will affect whole market.
– Less likely to compete based on price.

4. Little Freedom to
Enter or Exit Market:
– Start-up costs are extremely high for factories, warehouses, etc.
– Existing firms may also hold patents
Oligopoly

https://www.youtube.com/watch?v=9Hxy-TuX9fs

FrontPage: A “market structure” defines the level of _____ in a given market.
Nashville-based artist and illustrator Drew Tyndell creates these looping animations which he paints frame by frame in Photoshop.
The Last Word: Ch 7 Review due Monday; Quiz Mon.

# of
Sellers
Type of
Product
Perfect
Competition
Many
Monopolistic
Competition
Less than PC
Identical
Differentiated
Seller’s
Control over
Prices
None
Limited
Barriers to Enter or Exit
Market
Almost none
Few
Oligopoly Few
Could be Identical or differentiated
More More
Monopoly One
Standardized, no close substitutes
* Complete
Very
Many

MOST COMPETITIVE
Perfect
Competition
Monpolistic Competition
– Fewer firms
– Harder to enter/exit market?
– More control over price
Oligopoly
LEAST COMPETITIVE
Monopoly

FrontPage: NNIGN
LAWTON, Okla.-Strange moments for a local restaurant Friday night when one patron couldn't pay for her dinner or drinks. Police say Kristi Rhines ordered several alcoholic drinks and food at El
Chico in Lawton but later said she had no way to pay for them. She told managers her husband was on his way to pick up the tab.
When asked about her husband, she told them she was legally married to Jesus
Christ, but had no marriage license. She also told management that Jesus would be able to walk in and produce U.S. currency to pay for her bill.
Police confirmed that Rhines had no way
Woman arrested, claiming Jesus Christ will pay her restaurant tab of paying for her tab. She was booked into the Lawton City Jail on a complaint of fraud.
The Last Word: No homework