TYPES OF MARKETS
How do firms sell their products?
PERFECT COMPETITION
All kinds of fun and excitement
Characteristics of a PC Market
1.
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3.
4.
Very large numbers
•
Both buyers and sellers, so that no one has control
Standardized product
•
Products must be identical so that no one will pay
more for what they perceive to be better quality
“Price takers”
•
Producers have no control over the price in the market
Free entry and exit
•
Start up costs and technologies are such that anyone
can freely enter the market
THE PURE MONOPOLY
The fun and excitement of a single firm in the industry!!!!
Characteristics of the Monopoly Market
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Single seller
No close substitutes
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“Price maker”
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As opposed to the PC firms price
taking
High barriers to entry
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With marketable substitutes the
monopoly would not retain price
control
Entry is restricted by
technology, patents, or
cash outlays
Non-price competition

Generally none, only to influence
demand
Barriers to Entry
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Economies of Scale
 The cost of entering an industry
and size of those in the industry
dissuade others from entering
Patents and Licenses
 Legal barriers keep other firms
from entering
Ownership of Resources
 DeBeers Diamond company
markets about 70% of all
diamonds in the world
Pricing
 Lowering prices to drive out
competition
MONOPOLISTIC COMPETITION AND OLIGOPOLY
The Fun and Excitement of imperfect competition
Monopolistic Competition
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Large # of Sellers
 Small market share
 No collusion
 Independent action
Differentiated Products
 Quality/Styling
 Service
 Brand Name
Easy Entry and Exit
 Limited barriers to entry
Non-price Competition
 Advertising to make price less of a
factor in decision making
Non Price Competition
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Product differentiation
 The idea that we view products as being
different
 Can be based on quality, style, branding,
etc
 Can lead to poor choices, i.e.
price=quality
Product development
 This is the process by which new products
are developed
 This increases differentiation
Advertising
 Firms must balance price, product, and
costs of developing demand to maximize
profit
Oligopoly
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Products can be homogenous or differentiated
 An oligopoly market can be either type of product, the key is
market share and price control
Firms do retain price control, but they are dependent upon one
another
 The profits of the firm not only depend on its own price, but also
on the price of it’s competitor
High barriers to entry