Section 3: Monopolistic Competition and Oligopoly

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Transcript Section 3: Monopolistic Competition and Oligopoly

Describe what is happening
Take out Spiral
What will we learn today?
12.2.7 Analyze how domestic and international competition in a market economy
affect goods and services produced and the quality, quantity, and price of those
products.
Unit: Market Structures
Think about the last
purchases you made,
what contributed for
you deciding to buy that
item? Is there truth to
advertisement?
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Assignment 12:
7.3 Monopolistic Competition
and Oligopoly Notes
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Section 3: Monopolistic
Competition and Oligopoly
 So far we learned about two extremes:
perfect competition and monopoly.
Very few things actually fall into those
categories. Instead, most fall into two
additional categories economists call
monopolistic competition and
oligopoly.
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I. Monopolistic Competition
 In monopolistic competition, many companies
compete in a open market to sell products that are
similar but not identical.
Examples: jeans, bread (loaf), shoes, drinks, etc.
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A. Four Conditions of
Monopolistic Competition
1. Many firms: many companies selling products
2. Few barriers to entry: anyone can sell
products without much trouble getting started
3. Slight control over price: consumers are
willing to pay more for some brands, but not too
much more.
4. Differentiated products: even though
products are similar, they have differences (Zune
vs. iPod)
(differentiation: making a product different
from other similar products)
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B. Nonprice Competition
 Firms try to compete with nonprice
competition, or attracting customers
through style, service, or location, but not a
lower price.
 Some examples:
1. Physical Characteristics: size, color,
shape, texture, taste
Example: A pen is a stick with ink that
writes, but we pay more for style or how it
writes.
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2. Location: Location is very important to a
business's success.
3. Service level: restaurants: expensive, fast
food: cheap. Both offer food.
4. Advertising, image, or status: Customers
are willing to pay more for brand name
clothes with logos
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Section 3 - Oligopoly
 $ An oligopoly is a market
dominated by two or four firms
producing 70%-80% of the output.
Example: Pepsi, Coke
A. Barriers to Entry
 It can be tough to go up against
these companies. Who would
want to create a new soft drink to
challenge Pepsi or Coke?
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B. Cooperation and Collusion
 Price war: a series of competitive price cuts that lower
the market price below the cost of production
example: PS3 lowers price, so does Xbox and Nintendo
 Collusion: when businesses get together and set
prices, divide the market, or limit production (illegal)
 Price fixing: an agreement among firms to charge one
price for the same good (illegal)
 Cartel: a formal organization of producers that agree
to coordinate prices and production (illegal in the US)
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 It’s a Mad Mad Mad World
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Assignment :
pg. 171, 1 – 7 (skip #6)
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Assignment :
Advertising Brainwashing
 Write down as many advertising slogans as you can
think of.
 Person who can write the most gets extra credit.
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ADVERTISING: What is it?
 Like A Rock
ADVERTISING
 Like A Rock
ADVERTISING
 Maybe She’s Born With It
ADVERTISING
 Maybe She’s Born With It
ADVERTISING
 I’m Loving it!
ADVERTISING
 I’m Loving it!
ADVERTISING
 Just Do It!
ADVERTISING
 Just Do It!
ADVERTISING
 Can You Hear Me Now? Good!
ADVERTISING
 Can You Hear Me Now? Good!
ADVERTISING
 Ch Ch Ch Charming!
ADVERTISING
 Ch Ch Ch Charming!
ADVERTISING
 If It Doesn’t Get All Over the Place, It Doesn’t Belong
In Your Face
ADVERTISING
 If It Doesn’t Get All Over the Place, It Doesn’t Belong
In Your Face
ADVERTISING
 Have It Your Way!
ADVERTISING
 Have It Your Way!
ADVERTISING
 Eat Fresh
ADVERTISING
 Eat Fresh
ADVERTISING
 Is It in You?
ADVERTISING
 Is It in You?
ADVERTISING
 Think Outside the Bun
ADVERTISING
 Think Outside the Bun
ADVERTISING
 Built _____ Tough
ADVERTISING
 Built Ford Tough
The Power of Ads
This project is worth 50 points,
so be sure to do a good job.
YOUR TURN! You will get into groups of 2-3 (pick people you
are comfortable working with, possibly after school)
In groups, you will choose a product to sell. You will apply
non price competition to encourage people to buy your
product.
For this product you must create:
1. A slogan- short catchy saying
2. A advertisement- (hand drawn or computer generated)
poster with slogan and picture that includes advertising
technique, message and target audience.
3. A commercial- short skit that includes advertising
technique, message and target audience.
- All group members must participate in commercial.
- You must use props and scripts.
- Commercial will be performed in front of class. (You can record on your
own, but must be in a format that can be shown to class.)
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ADVERTISMENT Project
 Advertisement/Poster – 15 points
 Leave little to no white space
 Should be very visually appealing (think like a magazine
advertisement)
 Use your slogan!
 Commercial/Skit – 25 points
 Everyone participates (camera man can sit it out)
 Can be anywhere from 45 seconds to 2:00 long
 Use props. Dress up. Be professional. Use a script. Don’t
improvise.
 Slogan – 10 points
 Short, catchy.
Is Wal-Mart Good for America?
 Discuss
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 Is Wal-Mart Good For America?
 Before we watch:
 Outsourcing is when a business obtains services or products used in
manufacturing, such as parts for a television set, from an outside (often
overseas) supplier or manufacturer in order to cut costs.
 Offshore Companies conduct most of their business outside of the country in
which they are incorporated. These companies are also known as non-resident
companies.
 Push Production is when manufacturers of products decide what to produce,
how much to produce and the price of the product.
 Pull Production is when retailers determine what the manufacturer will
produce, how much to produce and the price of the product.
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
What did you notice at the Wal-Mart shareholders meeting? Do you think this is different from other shareholders'
meetings? If yes, in what ways?

How is Wal-Mart able to keep track of its inventory? Why is this important? List the effects this has on producers.

Trace the decline of Rubbermaid from 1994 to 2004. What factors most contributed to this decline?

What is an opening price point? How does it influence sales?

Wal-Mart started a campaign encouraging people to buy products that were made in America. What influence did this
have on Wal-Mart's buying practices? Be specific!

In 1994, President Clinton said that new trade agreements would create a market for American products in China.
What happened to the United States companies after opening trade with China? Include statistics, companies and
places.

List the arguments in favor of outsourcing and those that are against it.

Compare the situation at Five Rivers Electronics and the Thomson Plant. What caused problems and what was the
result for each?
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