Monopolies and Oligopolies

Economics 1

What is a Monopoly?! It forms when others

prevent firms from entering a market that has a single supplier

One seller, but many buyers

Charge high prices They are illegal in

the U.S.!

Natural Monopoly Natural Monopoly-a

market that runs most efficiently when one large firm supplies all of the output

Ex.-Cincinnati Water Works

The Government usually steps in to allow one company to control these types-they control the price that way also!

Technological development can cause a natural monopoly to end

Government Monopoly Obviously created by the government Patents-gives a company exclusive rights

to sell a new good or service for a specific period of time. Guarantees that companies can profit from

their own ideas without competition Encourages development of new products

Franchise-the right to sell a good or service within an exclusive market-Our School!

License-a government issued right to operate a business

Baseball?! Did you know that

Major League Baseball has an exemption from monopoly laws?!

They limit the number and location of teams!

Price Discrimination Division of

customers into groups based on how much they will pay for a good

Discounts for seniors, children, students, etc.

Targeted Discounts Discounted airline

fares Manufacturers’

rebate offers Senior Citizen or

Student Discounts Children fly, eat,

or stay free promotions

Monopolistic Competition A market structure in

which many companies sell products that are similar but not identical

Jeans, bagel stores, ice cream stores, gas stations, etc.

These are Very common!

Four Conditions of Monopolistic Competition Many firms Few artificial barriers to entry

No patents Slight control over price

Generic vs. name brand Differentiated Products

Making a product different from other similar products

Oligopoly A market structure

in which a few large firms dominate a market

High prices and low output

Air travel, breakfast cereals, household appliances

How do they work?! They keep other

companies from competing-patents, etc.

Coke vs. Pepsi vs. ?????????????????

Sometimes oligopolies work together to ban other forms of competition-this can be a monopoly!

Last Slide! Price war- a series of competitive price cuts

that lowers the market price below the cost of production

Collusion- an agreement among firms to divide the market, set prices, or limit production

Price fixing- an agreement among firms to charge one price for the same good

Cartel- a formal organization of producers that agree to coordinate prices and production Illegal in the U.S.!