Market Structure

sAnalyzing the levels of

competition in various markets

Suppose you want to start a new business…

• Review the scenarios on the next slide, and decide under which conditions you would prefer to start your business.

• Give at least two reasons to justify your selection.

The factors that influenced your decisions are characteristics that

economists use to describe the level of competition in markets.

Businesses behave differently depending on the type of

market structure in which they operate.

Market Characteristics• Number of Firms: How many firms produce

this type of product?• Type of Product: Do all competing firms

make products that are essentially the same or specialized?

• Barriers to Entry: How easy it is for a firm to enter the market (competition, start up costs, etc.)?

• Price Setting Power: How much control does a firm have over the selling price of the product?

Perfect Competition• The four basic market structures are defined by

how competitive they are. Perfect competition is the most competitive, with many producers offering identical products.

Perfect Competition

Farmers Market Stock MarketAgriculture

• Monopoly lies at the other end of the spectrum from perfect competition. A monopoly is a market with one producer offering a product for which there are no good substitutes. Examples include the water, power, and cable TV industries.

Monopoly

Monopoly

Water Cable TV Prescription Drugs

• Monopolistic competition lies at the more competitive end of the spectrum. It is a market with many producers offering similar but slightly different products. Examples include the shoe, clothing, and restaurant industries.

Monopolistic Competition

Monopolistic Competition

• Oligopoly lies at the less competitive end of the spectrum. It is a market with only a few producers that offer similar or identical products. Examples include the soft drink, aircraft, and auto industries.

Oligopoly

Oligopoly

This is a graphic equation that illustrates the market characteristics of the wheat industry in the 1990’s.

Let’s examine each piece of the equation.

What does this circle graph and written summary tell you about the “number of producers” in the wheat industry?

What does this flowchart and written summary tell you about the “similarity of products” in the wheat industry?

What does this illustration and written summary tell you about the “ease of entry” into the wheat industry?

What does this graph and written summary tell you about the “control over prices” in the wheat industry?

The question mark at the end of the equation indicates that you must determine the market structure of the

industry by examining the four characteristics.

Which market structure best describes the wheat industry in the 1990’s?

Problem Solving Groupwork Instructions:

• Number off to form 8 groups.

• Each group will be assigned an industry case study to analyze (Handout 7A).

• Each case study represents one of the three types of imperfect market structures.– Monopolistic Competition, Oligopoly, or Monopoly

• You will use the information from your notes and chapter 7 to create a graphic equation for your assigned industry.

Follow the procedures on Handout 7B to create a graphic

equation for your industry.• Have your teacher initial each of the following steps

as your group completes them:– Step 1: Assign Roles– Step 2: Learn about your assigned industry and decide

which market structure it exemplifies. DO NOT REVEAL YOUR INDUSTRY’S MARKET STRUCTURE TO OTHER GROUPS!

– Step 3: Brainstorm visuals for your graphic equation and create a rough draft of your poster (on the back of Handout 7B).

Make sure all visuals on the poster specifically illustrate how each characteristic functions in your

particular industry!• For “ease of entry into the market, you might draw one of these

two examples:

–Step 4: Create your poster!

You will receive poster paper after you have completed Step 3 and obtained

your teacher’s initials.

Gallery Walk Instructions:• As a class, fill in the first row of Handout 7C

about the wheat industry. Note that you are only required to record information about two of the four market characteristics.

Gallery Walk Instructions:• Conduct a gallery walk to learn about other groups’

case studies and complete Handout 7C.

• When instructed, hang your group’s poster on the wall and stand next to it.

• Begin the gallery walk by rotating to the poster to the right of yours.

• You will have a 3-4 minutes to examine this poster and take notes on Handout 7C.

• When the buzzer sounds, rotate again to the right.

• Repeat this process for the remaining posters.

Debriefing:1. Name one of the case studies.

2. What market characteristics and evidence did you record on Handout 7C for this industry?

3. Based on the market characteristics, which market structure does this industry exemplify?

4. The group that created this poster reveals the answer.

5. Repeat for the remaining case studies.