MARKET
STRUCTURES
Mr. Duggan
Economics
PERFECT COMPETITION
 Four
Conditions for Perfect
Competition
1. Many buyers and sellers participate
in the market.
 2. Sellers offer identical products
(Commodity)
 3. Buyers and sellers are well informed
about products
 4. Sellers are able to enter and exit the
market freely

COMMODITY
BARRIERS TO ENTRY TO THE
MARKET
 Not
being able to enter the market
leads to imperfect competition

High start up costs and a high know
how of technology leads to imperfect
competition
MONOPOLY
Forms when barriers prevent firms from entering
the market that has a single supplier.
 Monopolies take advantage of the market and
charge high prices, So America has outlawed
their practices

FORMING A MONOPOLY
Economies
of saleproducers cost drops as
production rises
NATURAL MONOPOLIES
When
one large firm enters the
market, competition will drive
down the market price and
decrease the quantity each firm
can sell. 1 or 2 of the firms cant
cover cost and will go out of
business.
 Example
public water supply
Technology
ends natural
monopolies
 Ex.
Phone lines
GOVERNMENT MONOPOLIES
Government issued
 Patent- gives a company exclusive rights to sell
a new good or service for a specific time



Franchise- a contract issued that gives a single
firm the right to sell


Ex. New drug
Ex. Food sales at a school
License- right to operate a business

Ex. Radio or T.V. Station
PRICE DISCRIMINATION
Divide consumers into two different groups and
charge two different prices
 Ex. Discounted airline fares
 Market power is the ability to control prices
and total output
 Limits of Price Discrimination

1. some market power
 2. Distinct customer groups
 3. people cant resell good or service

MONOPOLISTIC COMPETITION

Competitive firms sell goods that are similar
enough to be substituted for one another but are
not identical

Ex. jeans
4 CONDITIONS OF MONOPOLISTIC
COMPETITION
1. Many firms
 2. Few artificial barriers to entry
 3. Slight control over price
 4. Differentiated products (profit from different)

NON-PRICE COMPETITION
1.
Physical characteristics
2. Location
3. Service Level
4. Advertising, image, or
status
PRICE, OUTPUT AND PROFITS
Prices-
high costs firms have
power to raise prices
Output- is medium,
meaning not an unlimited
supply
Profit- earn just enough to
cover cost and salaries
OLIGOPOLY
Market
dominated by a few
large, profitable firms
 Set

prices high and output low
Ex. airliners
Many barriers to entry
 Work together to form a monopoly
 Cause government headaches

Price war- oligopolies disagreements to win
business
 Collusion- agreements by oligopolies to set price



Price fixing- caused by collusion
Cartels- agreement by a formal organization of
produces to fix prices and production ( don’t last long,
fall cause of greed over price)