Transcript In-Class Notes - Market Structures

ECONOMICS
CHAPTER 6
Characteristics
Perfect Competition
# of Firms In Each
Industry
Market Concentration
Many
Type of Product
Similar or Identical
Availability of
Information
Entry Into Industry
Much (Advertising)
Control Over Prices
None
Examples
Agriculture/Candy
Low
Very Easy
Characteristics
# of Firms In Each
Industry
Market Concentration
Monopolistic
Competition
Many
Low
Type of Product
Similar or Identical
Availability of
Information
Entry Into Industry
Much (Advertising)
Control Over Prices
Little
Examples
Airlines/Blue Jeans
Fairly Easy
Characteristics
Oligopoly
# of Firms In Each
Industry
Market Concentration
Few
Type of Product
Similar or
Differentiated
Much (Advertising)
Availability of
Information
Entry Into Industry
High
Difficult
Control Over Prices
Some
Examples
Cereal/American Autos
Characteristics
Monopoly
# of Firms In Each
Industry
Market Concentration
One
Type of Product
Unique (No
Substitutes)
Some (Advertising)
Availability of
Information
Entry Into Industry
Absolute
Difficult/Prohibitive
Control Over Prices
Complete
Examples
Electricity/Gas
PERFECT
COMPETITION
MONOPOLISTIC
COMPETITION
OLIGOPOLY
MONOPOLY
B.
• 1. Define product differentiation.
• When sellers point out differences
between their product and another
seller’s product.
B.
• 2. Provide an example of product
differentiation (outside of the
textbook).
• Quality, size, comfort, fit, taste, etc.
B.
• 3. Define non-price competition.
• Competition between firms that is
based on something other than price.
B.
• 4. Provide an example of non-price
competition (outside of the textbook).
• Use of celebrities in advertisements,
brand names, warranties, guarantees,
service, etc.
B.
• 5. How do oligopolies use non-price
competition?
• Through advertisements and brand
name loyalty.
B.
• 6. How do sellers in oligopolies maintain
a degree of control over price?
• Through interdependent pricing,
responding to price changes of their
competitors.
B.
• 7. Explain the most common form of
interdependent pricing.
• Price leadership, a large seller takes the
lead at setting a price.
B.
• 8. a. What is a price war?
• Sellers aggressively undercut each other’s
prices in order to gain a larger share of the
market.
• b. What causes a price war?
• Failed pricing policies of sellers.
• c. Explain what occurs when price wars end?
• Loss of profits, business go under.
B.
• 9. Define collusion.
• The illegal action of sellers in an
industry secretly agreeing to set
production levels or prices.
B.
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10. a. What is a cartel?
An organization of sellers of similar products.
b. Why are cartels illegal?
They fix prices/interfere with the market.
c. Why are cartels short-lived and unstable?
Members may not adhere to their
agreements.
B. 11.
Type of
Monopoly
a. Natural
b. Geographic
c.
Technological
d. Government
Definition
Example
Efficient
producer
Location
Gas Co./
Electric Co.
Lumber Mill
Patent/
iPod
Copyright
Public Service/ Post Office
Goods
B.
• 12. Explain three forces that limit the
seller’s control over prices.
• Consumer demand
• Potential competition (more sellers
enter the industry)
• Government regulation of the industry
or product
B.
• 13. How did the relationship between
government and business change in the
late 1800s?
• Trusts held too much control over the
market, so the government began to
regulate them.
B.
• 14. a. Interstate Commerce Act
• Created the Interstate Commerce
Commission to regulate railroad rates,
so that railroad companies would not
take advantage of farmers who had to
transport their goods.
B.
• 14. b. Sherman Antitrust Act
• Prohibited any agreement that would
interfere with interstate trade or cause
a monopoly to form.
B.
• 14. c. Clayton Antitrust Act
• A follow-up to the Sherman Antitrust
Act: Prohibited price discrimination,
mergers that would reduce competition,
and exclusive sales contracts.
B.
• 14. d. Free Trade Commission Act
• Created the Free Trade Commission to
investigate charges of unfair
competition.
B.
• 14. e. The Robinson-Patman Act
• A follow-up to the Clayton Antitrust
Act: Prohibited price discrimination.
Wholesalers cannot charge small sellers
higher prices than large sellers.