MARKET
STRUCTURES AND
BUSINESS
ORGANIZATIONS
4 Market Structures:
1. Perfect Competition (defn)- aka pure
price competition
4 conditions must exist:
• Many buyers and sellers in the mkt- one
company can’t influence the total mkt;
they are price takers (defn)- the mkt
determines prices
• Sellers offer identical products(commodities) buyers will always choose
the supplier with the lowest price
• Buyers/ sellers are well informed- we go
out to find the best deal which means we
must have all the info on the product/ the
time spent must be worth the amount of
money to be saved
• Easy entry/ exit into the mkt- this means
there will be no barriers to entry such as
start up costs and technology
Examples: farm products, stocks, low grade
gas, milk
Competition w/in mkts keeps prices low
2. Monopoly (defn) dominated by a single
seller
They tend to form when barriers to entry
exist and then they can charge whatever
price they want; supplies are usually
lower when there is a monopoly.
Types of monopolies:
• Natural- firms can only cover costs with
no competition such as utilities
• Govt- created by the govt
Example- post office, patents
patents- license giving the inventor
exclusive rights (usually for 17 years);
this promotes research and development
3. Monopolistic Competition (defn)4 conditions:
• Many firms
• Few barriers to entry- enter mkt easily
and cheaply w/ few or no restrictions
• Differentiated products-ex: hamburgers
• Slight control over price- can’t make too
many changes b/c of substitutes
4. Oligopoly (defn)
• Mkt dominated by few large firms
• 4 largest firms produce at least 70-80%
• Tend to form when major barriers to entry
exist such as high start up costs or an
established reputation to compete against
• Bad practices include price leadership,
collusion (defn), and cartels, but they are
very difficult to achieve/ maintain
• Ex- cereal, cola, airlines, cars
Nonprice Competition: using means other
than price to compete
1. Physical characteristics- new size, color,
shape, texture, etc.
2. Location- very important factor (see next
slide)
3. Service level- higher levels of service may
allow a company to charge higher prices
4. Advertising, image, or status – product
differences are often just a matter of
perception
Marketing- 4 Ps :
• Price- advertising must make clear
assertions of a product’s value
• Place- ads must include directions so
consumers will know where to find it
• Product- ads must provide enough
information so consumers will be
informed and desire to make purchases
• Promotion- ads must promote a product
in a way that catches attention
Government’s Role:
In a free mkt society, does the govt
need to regulate business?
Why or why not?
Isn’t the point of free enterprise to
allow the market to regulate itself?
• A lack of competition will negatively
affect prices and supplies of products
• The govt passes antitrust laws to outlaw monopolies or prevent the
forming of them from unfair practices
• Can break up companies who have a
monopoly
• Can block mergers that would reduce
competition
Business Organizations:
1. Sole Proprietorships (defn)
• Owned by single individual
• 75% of all firms are SP
• Advantages vs.
Disadvantages (see
handout)
2. Partnerships
• Owned by 2 + people
• Divide responsibilities and
profits
• About 7% of firms are
Partnerships
• Advantages vs. Disadvantages
3. Corporations
• Legal entity or being- treated
just like a person
• Owned by stockholders
• Make up about 20% of all firms
but sell about 90% of all goods
• Advantages vs. Disadvantages
Other Organizations:
1. Non Profit- functions like a business
but doesn’t seek to make a profit/
they benefit society
ex: charities, colleges, hospitals
2. Govt owned corporations- usually
happens only if the mkt doesn’t
adequately supply a needed G or S
ex: post office, FDIC, public transit
3. Cooperatives (co-ops)- organization
owned by a group of individuals for
their shared benefit
ex: Ocean Spray, State Farm Ins, Sam’s
4. Franchises (defn)- parent companies
sell the right of a firm to use their
name and products in a given area
Advantages vs. Disadvantages
ex: McDonald’s, convenience stores