market structures. pure/ perfect competition is a market structure in which a large number of firms...
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Pure/ Perfect competition is a market structure in which a large number of firms all produce the same product.
1. Many Buyers and SellersThere are many participants on both the buying and selling sides.
2. Identical ProductsThere are no differences between the products sold by different suppliers.
3. Informed Buyers and SellersThe market provides the buyer with full information about the product and its price.
4. Free Market Entry and ExitFirms can enter the market when they can make money and leave it when they can't.
The Four Conditions for The Four Conditions for Pure/Perfect CompetitionPure/Perfect Competition
Pure/Perfect CompetitionPure/Perfect Competition
Ability to control prices: None, sell what Ability to control prices: None, sell what you can at the market price. you can at the market price.
-PRICE TAKER-PRICE TAKER
Ease of Entry: VERY, very easyEase of Entry: VERY, very easy
Factors that make it difficult for new firms to enter a market are called barriers to
entry.
Barriers to EntryBarriers to Entry
Start-up Costs The expenses that a new
business must pay before the first product reaches the customer.
Technology Some markets require a high
degree of technological know-how. As a result, new entrepreneurs cannot easily enter these markets.
Market Equilibrium in Perfect Competition
Quantity
Pri
ce
One of the primary characteristics of perfectly competitive markets is that they
are efficient. In a perfectly competitive market, price and output reach their
equilibrium levels.
Supply
Demand
Equilibrium Price
Eq
uili
briu
m
Qu
an
tity
Price and OutputPrice and Output
Existence of Non-Price Competition: NoneExistence of Non-Price Competition: None
Examples: Agriculture and the Stock Examples: Agriculture and the Stock MarketMarket
Other: Theoretical –Would lead to Other: Theoretical –Would lead to completely efficient resources.completely efficient resources.
-No firm has power to influence price.-No firm has power to influence price.
-Govn’t or something prevents this from -Govn’t or something prevents this from happening.happening.
Pure/Perfect CompetitionPure/Perfect Competition
In monopolistic competition, many companies compete in an open market to sell products
which are similar, but not identical.
Monopolistic CompetitionMonopolistic Competition
Many FirmsAs a rule, monopolistically competitive market are not marked by economies of scale or high start-up costs, allowing more firms.
Differentiated and Similar Products: Firms have some control over their selling price because they can differentiate, or distinguish, their goods from other products in the market.
Slight Control over PriceFirms in a monopolistically competitive market have some freedom to raise prices because each firm's goods are a little different from everyone else's.
Few Artificial Barriers to EntryFirms in a monopolistically competitive market do not face high barriers to entry.
Monopolistic CompetitionMonopolistic Competition
Non-price competition: to attract customers through style, service, or location, but not a lower price.
PRODUCT DIFFERENTATION
Non-price Competition
1. Characteristics of GoodsThe simplest way for a firm to distinguish its products is to offer a newsize, color, shape, texture, or taste.
2. Location of SaleA convenience store in the middle of the desert differentiates itproduct simply by selling it hundreds of miles away from the nearestcompetitor.
3. Service LevelSome sellers can charge higher prices because they offer customers a
higher level of service.
4. Advertising ImageFirms also use advertising to create apparent differences between
their own offerings and other products in the marketplace.
Monopolistic CompetitionMonopolistic Competition
Examples:Examples:
Jeans, Haircuts, Washing Machines, Jeans, Haircuts, Washing Machines,
Gas StationsGas Stations
Other: Only thing that separates pure Other: Only thing that separates pure competition from monopolistic is competition from monopolistic is PRODUCT DIFFERENTATION.PRODUCT DIFFERENTATION.
OligopolyOligopoly Dominated by a few large, profitable
firms. Similar products Entry: Significant barriers, difficult: Significant barriers, difficult Non-Price Competition: YES: YES Examples: Soap, Cereal, Automobiles, : Soap, Cereal, Automobiles,
AirlinesAirlines Other: Interdependent, Price Wars: Interdependent, Price Wars
An oligopoly is a market structure in which a An oligopoly is a market structure in which a few large firms dominate a marketfew large firms dominate a market
Oligopoly
Illegal ActionsCollusion: an agreement among members of an oligopoly to set prices and production levels. Cartels: an association by producers established to coordinate prices and production. Price-fixing: an agreement among firms to sell at the same or similar prices.
Price Control?Price Control?
MonopolyMonopoly Number of Firms: ONE FIRM, a monopoly is a
market dominated by a single seller.
Similar or Different Products: Monopolies offer different products
LARGE ABILITY to CONTROL PRICES Monopolies can take advantage of their monopoly power and charge high prices.
VERY, VERY Hard to enter: Monopolies form when barriers prevent firms from entering a market that has a single supplier.
MonopolyMonopoly NON-PRICE Competition: None, only : None, only
firmfirm
doing their product!doing their product!
Examples: Diamonds, Electricity, : Diamonds, Electricity, MicrosoftMicrosoft
A monopoly is a market dominated by a single seller.A monopoly is a market dominated by a single seller.
Price discrimination: the division of customers into groups based on how
much they will pay for a good.
Price DiscriminationPrice Discrimination
Price discrimination is a feature of Price discrimination is a feature of monopolies.monopolies.
Targeted discounts, like student discounts Targeted discounts, like student discounts are one form of price discrimination.are one form of price discrimination.
Price discrimination requires some market Price discrimination requires some market power, distinct customer groups, and power, distinct customer groups, and difficult resale.difficult resale.