Market Structures

The nature and degree of competition between firms operating in the same

industry.

STORE

(LOCATION OF BUSINESS)

INDUSTRY (TYPE OF BUSINESS)

FIRM

(NAME OF BUSINESS)

FIRM

(NAME OF BUSINESS)

FIRM

(NAME OF BUSINESS)

STORE

(LOCATION OF BUSINESS)

STORE

(LOCATION OF BUSINESS)

STORE

(LOCATION OF BUSINESS)

Market Structures & Perfect Competition Reflections

As a group pick an industry- retail clothing stores, cereals, automobiles, grocery stores, auto parts, retail shoe stores.

On the top half of page 20 develop a tree map like the one we just did for your industry.

Most amount of competition to Least amount of

competition

Pure Competition Monopolistic Competition Oligopoly Monopoly

•Different business types face different amounts of competition.•The level of competition can be described by placing market structures along a continuum.

•The amount of competition businesses within an industry face determines the prices and variety of goods available to customers

Perfect Competition

Or Pure Competition

Characteristics of Perfect Competition

A large number of buyers and sellers (Individual firms have no influence over price).

Firms can easily go into and get out of business (low barriers).

Firms are selling identical products (Buyers won’t care who they buy from so individual firms have no influence over price).

Buyers and sellers are knowledgeable about the product’s price (A change in price will immediately change the amounts demanded and supplied for a firm).

Examples of Perfect Competition

–Commodities • Natural gas, oil or coal

• Agricultural products–Grains

–Produce

–Livestock

On page 20, give at least 5 more specific examples of commodities (goods sold at the factor of production level, that are identical between producers, and that there is only one market price)

Go back to page 18. Divide the page into fourths and draw me a picture that illustrates one of the first 4 vocabulary terms.

Monopoly

Characteristics of Monopolies

There is only one seller of the

product There has to be extreme

barriers to entry There are no close substitutes

Characteristics of Monopolies The quantity available will be lower

and the price will be higher than in a competitive market.– But the monopolist must take the Law

of Demand into account.

Prices up

Demand down

BARRIERS TO ENTRY

Develop economies of

scale

Obtain a natural monopoly.

Obtain a patent on your product.

Obtain a government franchise

or license

Boeing Aircraft Factory

Barriers to Entry Government owned business

Use non-competitive practices

(threats/ bribes).

Barriers to Entry Limited demand.

Control all natural resources needed to make the product.

Examples of Monopolies Water Companies

– Each neighborhood has only one water company serving it because it is more cost effective (Natural Monopoly)

National sports leagues– The Dallas Cowboys and the Texas

Rangers never have to worry about competition because they have a franchise

Pharmaceuticals– When a company develops a new drug it is

granted a patent for exclusive production for up to 20 years.

Monopoly Reflection (page 22)Directions: Copy the following, fill in the blanks and answer the question._______________ (choose a company from the examples I gave you) is an example of a monopoly. The barrier(s) that keeps competitors out of this market are _______________________

__________________________________________

Government allows monopolies by granting patents. Explain why government does this.

Go back to page 18 and draw a picture illustrating one of the terms from section 2 vocabulary.

Monopolistic CompetitionA market structure in which many firms sell products

that are SIMILAR but NOT IDENTICAL

Characteristics of Monopolistic Competition

Large number of buyers and sellers Most firms are small It is easy to get into and out of this

industry (Start-up costs are low). Similar, not identical, product

(Substitutable goods between firms are differentiated).

Firms can raise prices (You can charge a higher price for a differentiated product).

Non-Price Competition

Or Product DifferentiationFirms may: Make their product with an extra or new

feature Advertise heavily for name or product

recognition Choose a special location Provide a higher level of service

Examples of Monopolistic Competition

Restaurants Clothing stores Gas stations Grocery stores Hairdressers

Monopolistic Competition and Oligopoly Reflection

Divide page 24 in half On the top half, choose a product that

you regularly use and differentiate it –come up with at least 5 ways to make it different, better, more appealing to customers so you can charge more for it.

Go back to page 18, draw a picture illustrating one of terms 11-13.

Oligopoly

A market structure in which a few large firms dominate

Characterisitics of Oligopoly: A few very large firms dominate this

industry There are many barriers to entry

– Cost advantages (large start-up costs or economies of scale)

– Legal barriers (patents & licenses)– Non-price competition (advertising)– Illegal barriers (collusion, price fixing, cartels)

Pricing decisions by one firm affect all other firms (price leadership)

Price wars common

Examples of Oligopoly

Airlines Cereal companies Soft drink companies Automobile manufacturers

Oligopoly ReflectionOn the bottom half of page 24, complete the following.

1.Name four industries that fit the definition of oligopoly: a few large firms dominating the market.

2.For two of those firms explain what barriers from your notes are allowing them to do so.

3.Go back to page 18 and draw a picture of one of terms 14-18 (Oligopoly).

Government gives a company the exclusive right to provide goods or services within an area because the costs to consumers are lowered by having a single firm provide them (ex. AMUD, Charter Cable).

Four Types of Monopolies:Natural

Geographic Monopolies

There are no other businesses in the immediate area to offer any competition due to low demand or extreme isolation (ex. Driftwood in Granbury).

Technological MonopoliesA firm or industry has created a new

product or process and obtains a patent or copyright.(ex. Polaroid or pharmaceutical firms)

Government Monopolies

A government owned business that provides a product or service that private firms do not adequately provide (ex. US Post Office or Amtrak).