Competitive Market Structures
Ch.7.1
CA. State Standard # 12.2.3
Students explain the role of competition in market economy
TYPES OF COMPETITION
• Competition- struggle among sellers to attract
consumers.
• Perfect Competition – is a market Where buyers
& sellers: 1. deal in identical products, 2. are
large in numbers (not powerful enough to effect
price), 3. act independently, 4. are informed
about products and prices, and 5. have the
freedom to enter or get out of business.
• Imperfect Competition – Market structures that
lack one of the conditions for perfect
competition. (Most firms in the US)
Monopolistic Competition
• - In a Given Market a firm will make its
product a little different from others to try to
attract consumers. It deals with product
differentiation – products are not the same
• Market – toothpaste. Competitors: Colgate,
Crest, Gleam, Arm & Hammer, Bleach White,
Aim, Sensodyne, Aqua Fresh, etc.
Monopolistic Competition
• Non-price competition- methods used to lure
consumers into buying products without lowering
price.
• Advertising – radio, TV. news papers, bill boards.
They try to make products seem different than
everyone else. Special, no competition.
Oligopoly
• Few large sellers of a product dominate the market.
(auto industry, airlines, soft drink, telecommunications)
• When one firm lowers price other firms have to do the
same, or they will go out of business. Price Leader
(largest Corp.)
• Lowering prices can lead to a price war (good for
consumers) – a series of price cuts by all producers
which leads to unusually low prices, sometimes even
below the cost of production.
• Raising prices could make you go out of business also.
• Collusion- agreements to set prices among producers.
(Illegal).
Monopoly
• Only one seller of a particular product in the
market. No substitutes. (can control prices)
• There are no pure monopolies in the U.S.!
They are illegal (Sherman Anti-Trust Act 1890).
Rockefeller (Standard Oil), Carnegie (US Steel)
• There are near monopolies: U.S. Postal
Service, utilities companies
Monopolies that do exist
• Geographic monopolies – the location makes them a
monopoly. Ex: Gas stations miles from anywhere
(Vegas), Food vendors at arenas/Amusement
parks/and theatres, a store in the mountains/lake.
These are the only places to purchase items, and the
producers know it!!(price?)
• Technological monopolies – New technologies set
companies apart from others. Usually the company’s
products are better (Microsoft)
Competitive Markets SAR questions (4)
1. What is the difference between perfect and
imperfect competition? (p.164-166)
2. Explain Monopolistic competition, product
differentiation, and discuss non-price competition,
its major forms, and why it’s used. (p166-167)
3. Describe an Oligopolistic market and how it uses
interdependent behavior. Include these ideas:
collusion, and Price leader. (p.167-168)
4. Define monopoly, and explain these types of
monopolies: 1. Natural, 2. Geographical, 3.
Technological (p.169-171)