Market Structures

Least (Level of competition) Most

Virtually identical products

Many big names but product variety

75%+ market share

Full barriers &

price control

No price control (S&D)

Little price control, competitive

Similar goods

Econ of Scale?

Natural?

1000’s of producers

~10-~100 producers

2-5 producers

1 producer

Perfect

Competition

Monopolistic Competition

OligopolyMonopoly

Apply the structures to your worldWhat are some examples of

industries that fall into each of these categories?

List examples for each—be ready to defend or prove your choice.

Key Components of Perfect Competition

Almost all PC industries are with commodities—virtually identical products

Generally lowest start up costs and barriers of any business

Market forces determine prices—producers helpless to control the prices!– Therefore, gov’t protections are sometimes

needed for national security & self sufficiency Should gov’t set prices in PC for farmers?

                                                            

Key Components of Monopolistic Competition

Products are different (Subway v. McD’s) & substitutes are available—marketing strategies important

Non-price competition—ex: extra service, bonus, 20% free!, different products…

When firms raise prices consumers find substitutes? Highly competitive!!

Merger Mania?

Oligopoly Characteristics

What results if Coke & Pepsi merged? Government’s role is to keep the

competitiveness of the oligopoly and block the merger.

Collusion & Price Fixing are illegal but it is hard to prove. – Collusion & price fixing are usually short

lived (cartels simulation) Should Gov’t split the companies to change

Oligopolies to MC?

Merger? Collusion?

Oligopoly Collusion or Competition?

USA Hooked on OPEC

Monopoly Characteristics Unrestricted monopoly is bad for

consumers & competition! Allowed when best for consumers— Natural Monopoly

When is a monopoly good? Economies of scale—p. 157 read

– This determines the market structure of an industry! Diminishing Returns—apply?

Patents—Used as incentives to innovate! Franchise licenses—contracted or

purchased monopolies

Roosevelt puts Trusts on a Diet!Is Microsoft a Monopoly? Why sued?

Bill Gates’ bed time stories

Questions Why do some industries fall naturally

into less competitive categories? – Ex: Airlines, Autos, Cable, Power?

• (Economies of Scale)

Should the government step in to make industries like Airlines more competitive? If so, would it work?

Should Education be privatized or is it better off as a Natural Monopoly?

Minimum Wage & Unemployment