Download - Market Structures
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Market StructuresMarket Structures
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Market Structures
• What is the primary aim/goal of businesses?– To maximize profits
• What is competition?– Striving against others to reach an objective
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4 Types of Market Structure4 Types of Market Structure
1.1. Pure/Perfect CompetitionPure/Perfect Competition– Large number of buyers and sellersLarge number of buyers and sellers– IdenticalIdentical product product– Well informed buyers and sellersWell informed buyers and sellers– Price Takers!Price Takers!– Low barriers for entry/exitLow barriers for entry/exit
More Competition Less Competition
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Pure/Perfecct CompetitionPure/Perfecct Competition
Many buyer/sellers +
Identical Products
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5
4 3
2
1
Perfect Compet
ition
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Imperfect CompetitionImperfect Competition
Most USA markets are imperfect Most USA markets are imperfect competitioncompetition
Farming is perfectly competitive.Farming is perfectly competitive. A market is imperfect when it lacks A market is imperfect when it lacks
one or more of the characteristics of one or more of the characteristics of Perfect CompetitionPerfect Competition
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Forms of Imperfect Forms of Imperfect CompetitionCompetition
Monopolistic Monopolistic competitioncompetition– Large # of Buyers Large # of Buyers
and sellersand sellers– Product Product
DifferentiationDifferentiation– Non Price Non Price
CompetitionCompetition– Most markets in USA Most markets in USA
are monopolistic are monopolistic competitioncompetition
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Monopolistic CompetitionMonopolistic Competition
Meets all condition of perfect competition except Meets all condition of perfect competition except for identical products.for identical products.– Product differentiationProduct differentiation
Monopolistic competitors use nonprice Monopolistic competitors use nonprice competitioncompetition– Advertising, giveaways, or other promotionsAdvertising, giveaways, or other promotions
More Competition Less Competition
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What are some examples?What are some examples?
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Monopolistic CompetitionMonopolistic Competition
Same as pure competition except for product differentiation
Gap Levis Lucky
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ReviewReview
Classify each product as perfect comp Classify each product as perfect comp (pc) or monopolistic comp (mc)(pc) or monopolistic comp (mc)– ToothpasteToothpaste– WheatWheat– CoalCoal– BooksBooks– CDsCDs– Computer softwareComputer software– http://www.youtube.com/watch?v=9Hxy-http://www.youtube.com/watch?v=9Hxy-
TuX9fs&feature=relatedTuX9fs&feature=related
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OligopolyOligopoly
A A fewfew very large very large sellers dominate the sellers dominate the industryindustry
Oligopolists act independently by lowering Oligopolists act independently by lowering prices soon after the first seller announces prices soon after the first seller announces the cutthe cut
CollusionCollusion: formally agree to set prices: formally agree to set prices Heterogeneous productsHeterogeneous products Engage in price warsEngage in price wars High barriers to entryHigh barriers to entry
More Competition Less Competition
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What are some examples?What are some examples?
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OligopolyOligopoly
Few producers control supply and price
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Coca-Cola ClassicCoca-Cola Classic
Coca-Cola classicCoca-Cola classic SpriteSprite DasaniDasani Barq'sBarq's DannonDannon NesteaNestea RockstarRockstar EvianEvian
FantaFanta FrescaFresca Minute MaidMinute Maid Mr. PibbMr. Pibb PoweradePowerade Seagrams Ginger Ale & Seagrams Ginger Ale &
MixersMixers TABTAB
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Pepsi-coPepsi-co AquafinaAquafina PepsiPepsi Mountain DewMountain Dew Sierra MistSierra Mist SobeSobe Lipton Brisk TeaLipton Brisk Tea
MUG Root BeerMUG Root Beer SliceSlice GatoradeGatorade Dole JuiceDole Juice Tropicana Tropicana
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Cadbury SchweppesCadbury Schweppes
7 Up7 Up Canada DryCanada Dry ClamatoClamato Dr PepperDr Pepper Hawaiian Hawaiian
PunchPunch Mott'sMott's OranginaOrangina SnappleSnapple
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ToyotaToyota
ToyotaToyota ScionScion LexusLexus
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ChryslerChrysler
ChryslerChrysler JeepJeep DodgeDodge
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General MotorsGeneral Motors
ChevroletChevrolet BuickBuick PontiacPontiac GMCGMC SaturnSaturn HummerHummer SAABSAAB CadillacCadillac
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What is missing?What is missing?
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MonopolyMonopoly
OnlyOnly one one seller of a particular seller of a particular productproduct
Few monopoliesFew monopolies
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MonopolyMonopoly
More Competition Less Competition
One One seller dominates the market with seller dominates the market with no close substitutesno close substitutes
Sets pricesSets prices High barriersHigh barriers
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MonopolyMonopoly
Natural Natural MonopolyMonopoly - - efficient efficient production by a production by a single suppliersingle supplier
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MonopolyMonopoly
Geographic Geographic Monopoly - small Monopoly - small towntown
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TechnologicalTechnologicalMonopolyMonopoly
In order for the inventor to make money and In order for the inventor to make money and keep new ideas flowingkeep new ideas flowing
– Patients on inventionsPatients on inventions
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Government MonopolyGovernment Monopoly
It is a product that the government should It is a product that the government should provide because they are the governmentprovide because they are the government
– National defense, disposal of nuclear materialsNational defense, disposal of nuclear materials
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Market FailuresMarket Failures Inadequate CompetitionInadequate Competition
– Lack of competition which causes either buyers or Lack of competition which causes either buyers or sellers to control the marketsellers to control the market
Inadequate InformationInadequate Information– Consumers or producers lack enough information about Consumers or producers lack enough information about
a market to allow it to work properlya market to allow it to work properly ExternalitiesExternalities
– Unintended positive or negative side-effects to a 3Unintended positive or negative side-effects to a 3rdrd party because of a market transactionparty because of a market transaction
What are some examples?What are some examples? http://www.youtube.com/watch?v=DOuBxJNIFkY&feature=relatedhttp://www.youtube.com/watch?v=DOuBxJNIFkY&feature=related
Public GoodsPublic Goods– Goods used by all and directly paid for by noneGoods used by all and directly paid for by none
What are some examples?What are some examples?
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Sherman Antitrust Act
1890
Federal Trade Commission
Act 1914
Robinson-Patman Act
1936
Clayton Antitrust Act 1914
Federal Antitrust
Legislation
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4 Ways the Government 4 Ways the Government regulates businessesregulates businesses
1- Anti-trusts Laws1- Anti-trusts Laws 2- Non-discrimination laws2- Non-discrimination laws 3-Public Disclosure3-Public Disclosure 4-Federal Agencies p. 1804-Federal Agencies p. 180
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3-2-13-2-1
3 things you learned3 things you learned 2 things you want to learn more 2 things you want to learn more
aboutabout 1 question1 question