market structure. market structure the nature and degree of competition among firms in the same...
TRANSCRIPT
![Page 1: MARKET STRUCTURE. Market Structure The nature and degree of competition among firms in the same industry](https://reader036.vdocuments.net/reader036/viewer/2022062417/551913885503464a428b4910/html5/thumbnails/1.jpg)
MARKET STRUCTURE
![Page 2: MARKET STRUCTURE. Market Structure The nature and degree of competition among firms in the same industry](https://reader036.vdocuments.net/reader036/viewer/2022062417/551913885503464a428b4910/html5/thumbnails/2.jpg)
Market Structure• The nature and degree of competition
among firms in the same industry
![Page 3: MARKET STRUCTURE. Market Structure The nature and degree of competition among firms in the same industry](https://reader036.vdocuments.net/reader036/viewer/2022062417/551913885503464a428b4910/html5/thumbnails/3.jpg)
Perfect Competition
• Market structure characterized by a large number of well-informed independent buyers and sellers who exchange identical products.
• A Theoretical ideaQ: So why does perfect competition serve as a theoretical market structure?A: Its advantages serve as a yardstick or example for other structures to be measured by.
![Page 4: MARKET STRUCTURE. Market Structure The nature and degree of competition among firms in the same industry](https://reader036.vdocuments.net/reader036/viewer/2022062417/551913885503464a428b4910/html5/thumbnails/4.jpg)
Perfect Competition Conditions
1. Must be a large number of buyers and sellers2. Buyers and sellers deal in identical product3. Each buyer and seller acts independently4. Buyers and sellers are reasonably well-
informed about product and prices5. Buyers and sellers are free to enter into,
conduct, or get out of business
![Page 5: MARKET STRUCTURE. Market Structure The nature and degree of competition among firms in the same industry](https://reader036.vdocuments.net/reader036/viewer/2022062417/551913885503464a428b4910/html5/thumbnails/5.jpg)
Monopolistic Competition
• Market structure that has all the conditions of perfect competition except for identical products.
• Seller has the ability to raise or lower the price• If sellers raise or lower the price enough,
customers will change brands
![Page 6: MARKET STRUCTURE. Market Structure The nature and degree of competition among firms in the same industry](https://reader036.vdocuments.net/reader036/viewer/2022062417/551913885503464a428b4910/html5/thumbnails/6.jpg)
Monopolistic Competition
• Characterized by product differentiation: real or perceived differences between competing products in the same industry.
• To make their products stand out, they use nonprice competition: the use of advertising, giveaways, or other promotions designed to convince buyers that the product is somehow unique or fundamentally better than a competitor’s.
![Page 7: MARKET STRUCTURE. Market Structure The nature and degree of competition among firms in the same industry](https://reader036.vdocuments.net/reader036/viewer/2022062417/551913885503464a428b4910/html5/thumbnails/7.jpg)
Oligopoly
• Market Structure in which a few large sellers dominate the industry
• Products may be distinct like the car industry or standardized like the steel industry
• When one firm changes prices, enhances product, etc the other firms usually follow or they run the risk of losing customers
![Page 8: MARKET STRUCTURE. Market Structure The nature and degree of competition among firms in the same industry](https://reader036.vdocuments.net/reader036/viewer/2022062417/551913885503464a428b4910/html5/thumbnails/8.jpg)
Monopoly
• Market structure with a single seller of a particular product
• Few Pure Monopolies today…very rare
![Page 9: MARKET STRUCTURE. Market Structure The nature and degree of competition among firms in the same industry](https://reader036.vdocuments.net/reader036/viewer/2022062417/551913885503464a428b4910/html5/thumbnails/9.jpg)
Characteristics of Market StructureNumber
of Firms in Industry
Influence over Price
Product Differentiation Advertising
Entry into Market Examples
Perfect Competition Many None None None Easy
Perfect: NoneNear: Truck Farming
Monopolistic Competition Many Limited
Fair Amount
Fair Amount Easy
Gas StationsWomen’s clothing
OligopolyFew Some
Fair Amount Some Difficult
AutomobilesAluminum
Pure Monopoly One Extensive None None
Almost Impossible
Perfect: NoneNear: Water
![Page 10: MARKET STRUCTURE. Market Structure The nature and degree of competition among firms in the same industry](https://reader036.vdocuments.net/reader036/viewer/2022062417/551913885503464a428b4910/html5/thumbnails/10.jpg)
Types of Monopolies
• Natural Monopoly: market situation where the costs of production are minimized by having a single firm produce the product– IE: Public utilities
• Geographic Monopoly: market structure based on the absence of other sellers in a particular geographic area– IE: Only 1 gas station in a small town
![Page 11: MARKET STRUCTURE. Market Structure The nature and degree of competition among firms in the same industry](https://reader036.vdocuments.net/reader036/viewer/2022062417/551913885503464a428b4910/html5/thumbnails/11.jpg)
Types of Monopolies• Technological Monopoly: based on a
firm’s ownership or control of a production method, process, or other scientific advance– IE: item with a patent
• Government Monopoly: monopoly owned and operated by the government– IE: oversee water use, weapon-grade
uranium for military
![Page 12: MARKET STRUCTURE. Market Structure The nature and degree of competition among firms in the same industry](https://reader036.vdocuments.net/reader036/viewer/2022062417/551913885503464a428b4910/html5/thumbnails/12.jpg)
Market Failure• Condition that causes a
competitive market to fail
![Page 13: MARKET STRUCTURE. Market Structure The nature and degree of competition among firms in the same industry](https://reader036.vdocuments.net/reader036/viewer/2022062417/551913885503464a428b4910/html5/thumbnails/13.jpg)
5 Reasons for Failure:1. Inadequate Competition2. Inadequate Information – if the knowledge is
important to buyers and sellers but is difficult to obtain
3. Resource Immobility – factors of production do not move to markets where returns are the highest
4. Public Goods – products that are collectively consumed by everyone
5. Externalities – unintended side effect that either benefits or harms a third party not involved.
![Page 14: MARKET STRUCTURE. Market Structure The nature and degree of competition among firms in the same industry](https://reader036.vdocuments.net/reader036/viewer/2022062417/551913885503464a428b4910/html5/thumbnails/14.jpg)
Externalities• Negative: harm, cost, or inconvenience
suffered by a third party because of actions by others– IE: Noise from an airport, pollution
• Positive: a benefit someone receives who was not involved in the activity that generated the benefit.– IE: Airport expansion provides more business for
local restaurantsDoesn’t matter if they are positive or negative: they are considered market failures, because their costs and benefits are not reflected in the market prices that buyers and sellers pay.
![Page 15: MARKET STRUCTURE. Market Structure The nature and degree of competition among firms in the same industry](https://reader036.vdocuments.net/reader036/viewer/2022062417/551913885503464a428b4910/html5/thumbnails/15.jpg)
The Role of Government
• The government exercises its power to maintain competition within markets
• Two ways that government can maintain competitive markets:1. Prohibiting market structures that are not
competitive2. Regulating markets where full competition is not
possible
![Page 16: MARKET STRUCTURE. Market Structure The nature and degree of competition among firms in the same industry](https://reader036.vdocuments.net/reader036/viewer/2022062417/551913885503464a428b4910/html5/thumbnails/16.jpg)
Antitrust Legislation
• Trust: illegal combination of corporations or companies organized to hinder competition
• Price Discrimination: the practice of selling the same product to different consumers at different prices
• Cease and Desist Order: ruling requiring a company to stop an unfair business practice that reduces or limits competition
![Page 17: MARKET STRUCTURE. Market Structure The nature and degree of competition among firms in the same industry](https://reader036.vdocuments.net/reader036/viewer/2022062417/551913885503464a428b4910/html5/thumbnails/17.jpg)
Anti-Monopoly Legislation
• Sherman Antitrust Act 1890 – Outlawed all contracts to stop the growth of trusts and monopolies
• Clayton Antitrust Act 1914 – Strengthened the Sherman Act by outlawing price discrimination
• Federal Trade Commission Act 1914 – Established the Federal Trade Commission to regulate unfair methods of competition in interstate commerce.
• Robinson-Patman Act 1936 – Made it where everyone got the same rebates and discounts
![Page 18: MARKET STRUCTURE. Market Structure The nature and degree of competition among firms in the same industry](https://reader036.vdocuments.net/reader036/viewer/2022062417/551913885503464a428b4910/html5/thumbnails/18.jpg)
Q:What two market failures does the government have the ability to correct?
Inadequate Informationand Public GoodsA:
![Page 19: MARKET STRUCTURE. Market Structure The nature and degree of competition among firms in the same industry](https://reader036.vdocuments.net/reader036/viewer/2022062417/551913885503464a428b4910/html5/thumbnails/19.jpg)
Improve Economic Efficiency
• Promote Transparency – information and actions are not hidden and are easily available for review– Public Disclosure: requirement that businesses
reveal certain information to the public• Provide Public Goods