MARKET STRUCTURES

MARKET STRUCTURE Features of a Market. Such as: Ease of entry into the market

Low barriers to entry Number of buyers/sellers Forms of competition

PERFECT COMPETITION This market structure is not real. It is

guided strictly by the laws of supply and demand.

It is a theory that economist created to show what a true competitive market would look like.

PERFECT COMPETITION Commodities (ID products) Easy entry/exit

Low barriers to entry Many buyers and sellers Consumers are well informed No price control – no market power Example: the oil activity, agricultural

products

MONOPOLISTIC COMPETITION This is a REAL market structure. You

shop in it regularly. It is based on differentiating your

products to increase its uniqueness.

MONOPOLISTIC COMPETITION

Similar products Differentiate So similar you can substitute

Easy entry/exit Many buyers and sellers Consumers are well informed Some price control – some market power

Since the products are differentiated, you can charge a little more because of its uniqueness.

Example: cheeseburger fast food, shampoo

BASKETBALL SHOE You must have:

5 non-price factors drawn and marked on your shoe

Name your shoe Create a sloganCreate a logo

All of these must be on the front of your shoe. We will vote on Thursday. The winner gets 6 EXTRA CREDIT POINTS ON YOUR TEST!

MONOPOLY A monopoly is when one producer sells

a good or service. Since he is the sole provider, he can charge whatever price he/she wants.

MONOPOLY 3 characteristics

Sole producer (high market power)No close substitutesHigh barriers to entry

4 TYPES OF MONOPOLY Natural Monopoly – single producer that

produces most efficiently b/c of the economies of scale.Example – power companies

Geographic Monopoly – a monopoly due to location. Example – Disney World, the movie theater,

Six Flags Technological Monopoly Government Monopoly

4 TYPES OF MONOPOLIES Technological Monopoly – a producer is

the only one with a certain technology or way of producing.

Ex. Patent and copyright. Ex. Polaroid Camera

Government Monopoly – the government is the sole producer of a product.

Example – water company, 1st class mail

OLIGOPOLY A market structure where there are only

3-5 producers that produce the good or service

OLIGOPOLY Characteristics

3-5 producersDifferentiated products High barriers to entry and high market

power

Example – cereal industryKellogg, Post, and General MillsAmerican Cars – GM, Ford, Chrysler/Dodge

OLIGOPOLY Oligopolies compete legally with

price wars Differentiation of products

OLIGOPOLY Illegal Oligopolies

Cartel – openly announce they are a cartel. They TELL they are a cartel Cartels openly set prices and production Ex. OPEC

Collusion – secretly set prices and production.

Both are illegal in the US because they set prices.

ANTITRUST ACTS If they government didn’t step in to

regulate markets, do you think problems would arise?

YES – that is why we have antitrust acts.

ANTITRUST ACTS Antitrust acts were created to prevent

big businesses from dominating a market and acting like a monopoly or trust.

3 ANTITRUST ACTS TO KNOW Interstate Commerce Act – 1887

Regulated trade and did not allow price setting or price discrimination.

Sherman Antitrust Act 1890 – prohibits any agreements, contracts, or conspiracies that would restrain trade – too vague – Clayton antitrust act strengthened the wording of Sherman.

Federal Trade commission act 1914 – created the Federal Trade Commission (FTC) to investigate allegations of unfair methods of competition.