MARKET STRUCTURESMr. Duggan

Economics

PERFECT COMPETITION

Four Conditions for Perfect Competition1. Many buyers and sellers

participate in the market.2. Sellers offer identical products

(Commodity)3. Buyers and sellers are well

informed about products4. 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 competitionHigh 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 MONOPOLYEconomies of sale- producers 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 monopoliesEx. Phone lines

GOVERNMENT MONOPOLIES Government issued Patent- gives a company exclusive rights to

sell a new good or service for a specific time Ex. New drug

Franchise- a contract issued that gives a single firm the right to sell 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 characteristics2. Location3. Service Level4. 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

OLIGOPOLYMarket dominated by a few large, profitable firmsSet 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)