Competition and Monopolies

Businesses are categorized by market structure, otherwise known as the amount of competition they face in the market.

Large Market- numerous buyers and sellers

Similar Products- nearly identical Easy Entry and Exit- sellers cannot

prevent competition, initial cost of investment is small, and good or service is easy to produce/learn

Easily Obtainable Information Independence- impossible for seelers to

get together to control the price

Determined by the forces of supply and demand

With the internet, it is impossible for sellers to overcharge and expect to make a profit

Three types of Imperfect Competition are: Monopolistic Competition Oligopoly Monopoly

Characteristics of Monopolistic Competition Numerous sellers Relatively easy entry Differentiated products- each supplier sells a

slightly different product to attract customers▪ Sara’s scented candles; Flora’s floating candles; Tara’s

tealight candles Non-price competition- differentiation;

advertising Some control over price Exs: sneakers; clothing; household items

Characteristics of an oligopoly: Several suppliers dominate the

industry Barriers to entry- capital costs are

high difficult to enter market Identical of slightly different products Non-price competition-advertising

consumer loyalty Interdependence- any change by one

firm will result in change by another firm

Exs: Automobile industry; airline industry; oil; soft drinks

The most extreme form of imperfect competition is the monopoly. They can destroy a capitalist system, and are therefore strictly regulated.

Characteristics include: Single seller No substitute products No entry into industry Almost complete control over market price

4 categories Natural Geographic Technological Government

In the past it was thought to be more efficient, or natural, to have just one company provide a public good or service government granted exclusive rights to natural monopolies- providers of such things as cable TV, bus service, and utility companies because their large size seemed to give them economies of scale they could produce the largest amount for the lowest cost. Not so anymore.

A grocery store in a remote village faces no competition because no one else wants to open a grocery store there there is minimal potential for profit

If you invent something, the government grants you a patent you have the exclusive right to manufacture, rent, or sell that product for 20 years. The government does this so as to promote creativity by rewarding those who contribute to society.

Similar to natural monopoliesThe government maintains roads

and bridges and pays for it with our tax money. They do not allow competition in this industry as they are responsible for the outcome.