Market Structures
Perfect Competition
• What is it?
• 4 conditions
1. Many buyers and sellers
2. Identical products
3. Informed buyers and sellers
4. Free market entry and exit
• It doesn’t really exist
• Purpose is to study efficiency of markets
Why is it difficult for new firms?
• Barriers to entry
– Start-up Costs
– Technology
– Monopolies
What factors create monopolies?
1. Economies of Scale
2. Natural Monopolies
3. Government help
– Technological Monopolies
– Franchises and Licenses
– Industrial Organizations
• Video clip
Market Power
• Ability to control prices and output
• Examples of control?
– Sales/discounts
– Price discrimination
– Predatory pricing
• Companies will ALWAYS try to maximize profits
– Produces fewer goods at a higher price
– NOT PERFECT COMPETITION!
Monopolistic Competition
• Many companies compete to sell similar products
• 4 conditions
1. Many firms
2. Few artificial barriers to entry
3. Slight control over price
4. Differentiated products (brands and ads)
• Video clip
How do you attract customers?
• Characteristics
– Size, color, shape, texture, taste
• Location of sale
– Where will customers be located?
• Service level
– How good is your customer service?
• Advertising Image
– How can you be seen as different?
• Most disliked retailer, 2016?
Oligopoly
• Market dominated by a few large, profitable firms.
• Competitive danger?
• Cartels and Collusion/Price fixing
– Agreement to set prices and production levels
Government and Competition
• How can government control prices and supply?
– Regulating business practices
– Blocking mergers
– Breaking up monopolies
• Antitrust laws
• “Deregulation”
• Removal of controls to promote competition
CRASH COURSE!
• Monopolies and Anti-Competitive Markets