perfect competition large number of buyers and sellers no product differentiation low barriers to...
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Perfect Competition
Large number of buyers and sellersLarge number of buyers and sellers No product differentiationNo product differentiation Low barriers to entry and exitLow barriers to entry and exit Perfect and equal informationPerfect and equal information No price restrictions & no collusionNo price restrictions & no collusion
Market Individual
S
D
d
s=MC
Farmer’s as price takers
Consequences of Perfect Competition
Individuals are price takersIndividuals are price takers profits by costsprofits by costs Cost - price squeezeCost - price squeeze Don’t perceive horizontal competitionDon’t perceive horizontal competition Marketing decisions areMarketing decisions are
» Time, place, and form
Monopoly
One sellerOne seller Price setterPrice setter
» Firm supply is the market supply
ExamplesExamples» Utilities, cable TV
» Often regulated
D
MR Q
P S
QM
PM
MR=MCPC
Monopoly Supply and Demand
Monosony
One buyerOne buyer Price setterPrice setter
» Firm demand in market demand
Depend on market definitionDepend on market definition» Time, form, place
Monopoly / Monosony
Success depends onSuccess depends on» Barriers to entry
» Closeness of substitutes
Regional markets ????Regional markets ????
Oligopoly / Oligopsony
Few sellers or buyersFew sellers or buyers Individuals can influence priceIndividuals can influence price
» Co-exist with rivals» More stable prices
Optimal output is less than profit Optimal output is less than profit max output for any one firmmax output for any one firm
Oligopoly / Oligopsony
Often price leader/followerOften price leader/follower Emphasis on non-price comp.Emphasis on non-price comp. ExamplesExamples
» Autos, farm equipment, cereals
Oligopoly / Oligopsony
Incentive to try cartelsIncentive to try cartels» Work together to set supply or price
Some government sponsoredSome government sponsored» OPEC
» Marketing Boards
» Illegal in US
Monopolistic Competition
Between olig and perfect comp.Between olig and perfect comp. Relatively few firmsRelatively few firms Many close substitutesMany close substitutes Try to differentiate productTry to differentiate product
Monopolistic Competition
Very elastic demandVery elastic demand Prices nearly alike as Prices nearly alike as
consumers will switchconsumers will switch Emphasis on non price comp.Emphasis on non price comp.
» Pricing strategy
» Carcass merit, value based marketing
Structure and performance
Perfect competition will Perfect competition will produce output and aggregate produce output and aggregate price with the greatest price with the greatest operational efficiencyoperational efficiency
Monopoly has the lowest Monopoly has the lowest operational efficiencyoperational efficiency
Structure and performance
Olig & Mono Comp Olig & Mono Comp » In between perfect and monopoly
» Often lead to:–Excess capacity–Excess non-price competition
Competitive Conditions
Farm markets are near perfect Farm markets are near perfect competition but changingcompetition but changing» Product differentiation
» Branded products
» Advertising
» Promotion
Market Concentration Percent of sales by largest firmsPercent of sales by largest firms 4 firm concentration ratio CR44 firm concentration ratio CR4
» Strong olig CR4 > 50%» Weak olig CR4 33-50%» Unconcentrated CR4 < 33
Competition as concentration Competition as concentration All types in AgAll types in Ag
CR4 in Ag
Cattle slaughterCattle slaughter 6767 Steer and heifer slaughterSteer and heifer slaughter 8080 Hog slaughterHog slaughter 5656 Soybean millsSoybean mills 7171 Fluid milk Fluid milk 2222 Poultry processingPoultry processing 3434 Breakfast cerealBreakfast cereal 8585
Leaders
BeefBeef» IBP/Tyson, Excel/Cargill,
Swift/Conagra, Farmland, Smithfield
PorkPork» Smithfield, IBP/Tyson, Excel/Cargill,
Hormel
Leaders Grain HandlingGrain Handling
» ADM, Cargill, Bunge, Cenex Harvest States, Peavey/Conagra
Ag ChemicalsAg Chemicals» Bayer CropScience (Aventis), Syngenta,
Monsanto, BASF, Dow Agrosciences SeedsSeeds
» DuPont (Pioneer), Monsanto, Syngenta, Groupe Limagrain, Grupo Pulsar
Concentration and Market Definition
Iowa steer and heifer slaughterIowa steer and heifer slaughter US steer and heifer slaughterUS steer and heifer slaughter US cattle slaughterUS cattle slaughter All livestock slaughterAll livestock slaughter All protein productionAll protein production
Barriers to Entry
Key resourcesKey resources» Inputs, $$$, skills
» Patent
Economies of scaleEconomies of scale LocationLocation InformationInformation
Workable Competition
Enough buyers and sellers to Enough buyers and sellers to provide alternativesprovide alternatives
No one can coerce a rivalNo one can coerce a rival Firms respond to profit and lossFirms respond to profit and loss
Workable Competition
No collusionNo collusion Enough entry and exit for rivals to Enough entry and exit for rivals to
challengechallenge Free access of buyers and sellersFree access of buyers and sellers
Role of Government
Prevent or regulate monopolyPrevent or regulate monopoly Anti-trust laws to prevent Anti-trust laws to prevent
some types of behaviorsome types of behavior Coop laws to strengthen Coop laws to strengthen
smaller firms by banning smaller firms by banning togethertogether
Government Regulations Grain Inspection, Packers and Grain Inspection, Packers and
Stockyards Administration Stockyards Administration (GIPSA)(GIPSA)» Division of USDA» Regulation of markets and trade» http://www.usda.gov/gipsa/aboutus/bkgd2.htm
Federal Trade CommissionFederal Trade Commission» Anti-Trust investigations
Attorney General (State)Attorney General (State)
Concentration summary
More narrowly defined markets More narrowly defined markets are more concentratedare more concentrated
Integration is Integration is notnot concentration concentration Economies of scaleEconomies of scale
» Plant or firm level economies
» May drive concentration