Transcript Market Structures

Market Structures
California Standard
 12.2 Students analyze the elements of
America's market economy in a global
setting.
 7. Analyze how domestic and international
competition in a market economy affects
goods and services produced and the
quality, quantity, and price of those
products.
What is an industry or market?
List 8 different industries/markets
We categorize
industries/markets by how
many competitors exist in that
market/industry
FOUR MARKET STRUCTURES
Pure/Perfect
Competition
More
Competitors
Monopolistic
Competition
Oligopoly
Pure
Monopoly
Less 
Competitors
How does Competition affect
the consumer? Explain
3 Characteristics
of Perfect
Competition
1) Many buyers and sellers act
independently
No single buyer or seller in a
market has enough power to
control demand, supply, or
prices.
2) Sellers offer identical
products
Buyers choose one
product over another
primarily on price, not
unique characteristics.
3) Sellers can enter or exit the
market easily
Sellers must be able to enter a profitable
market—or leave an unprofitable one-easily.
This ensures that a single seller cannot
dominate a particular market. Few Barriers to
Entry
Barriers to entry: factors that keep competition
from entering a market/industry
Question
Relating to Barriers to Entry,
what are 3 concerns that you
would have if I came up to you
to tell you that to become rich, I
was going to start a Steel
Producing Company?
Example of Perfect Competition
Agricultural Products
1) Thousands of independent farmers
compete to sell their products to millions of
buyers
2) For the most part, products are
identical.
3) Farmers who already own land can
switch to different products easily
Monopolistic Competition
Key difference from Perfect
Competition: Sellers offer similar,
rather than identical, products.
Each firm seeks to have a
monopoly-like power by selling a
unique product - Product
Variation
Product Variation
Product variation is more common than having
identical products. Sellers try to differentiate,
or point out differences (real or merely seem
real), between their products and those of their
competitors.
Sellers here, compete on a basis other than
price. They compete through advertising and
by emphasizing their brand names.
Think of an industry where
there is Monopolistic
Competition. List the
different ways producers
differentiate their products
in this industry
rd
3 Market Structure:
Oligopolies
A market structure in which
a few large sellers control
most of the production of a
good or service
3 Conditions of an Oligopoly
1)The critical characteristic of an
Oligopoly is the presence of only a
few large sellers
A market is considered an oligopoly
when the largest three or four
sellers produce most (maybe 70%
or more) of the market’s total output
Conditions of Oligopoly
2) Sellers offer
identical or similar
products
Conditions of an Oligopoly
3) Difficult Market Entry
Significant Barriers to Entry- Examples?
High Start-Up Costs, A lot of
Technical Knowledge Needed,
High Consumer Loyalty
List 3 industries that would
qualify as oligopolies
Vocabulary: Collusion
When sellers secretly agree to set
production levels or prices for their
products
Illegal and carries heavy
penalties such as fines and
even prison sentences
Vocabulary: Cartels
Where companies openly organize a
system of price setting and market sharing
Illegal in the US but not everywhere
in the world
Examples: Diamonds (De Beers) and Oil
(OPEC)
Monopolies
Where a single seller
controls all production of
a good or service
Conditions of a Monopoly
1) A Single Seller
2) No Close Substitutes
3) Difficult Market Entry
4) Seller has a great deal of
Price Control
Types of Monopolies
 Natural Monopoly – Sometimes having
competition in an industry can be inefficient and not
in the public best interest. The government will
sometimes grant or allow some companies a
Natural Monopoly.
Ex. Utility Companies – Enormously
expensive, require construction, essential
for the public. Regulated by the
government
Types of Monopolies Cont’d
Technological Monopolies –
Patent: Grants a company or individual the
exclusive right to produce, use, rent and sell
an invention for 20 years
Why? To motivate ingenuity and creativity. To
give incentive to invent products
Copyright: Protects the work of authors,
musicians and artists
Expanding Business: Mergers
Horizontal Mergers
Merging two companies
within the same industry
Examples: 1)American Airlines
buying US Air 2) AT&T buying
Cingular Wireless
Expanding Business: Mergers
Vertical Merger –
Merger of two companies that are at
different stages in the same production
process
Example: A merger between Sears
and Maytag
Expanding Business: Mergers
Conglomerate Mergers
Merger of two companies that
are in different businesses
Examples: General Electric: Jet
Engines, NBC, Insurance, Financing;
PepsiCo: Pepsi, Frito-Lay, KFC, Pizza
Hut, Taco Bell
Conglomerate Merger Example
“I was chairman for two days, and
then I had jets with my engines hit a
building I insured, which was covered
by a network I owned, and we are still
growing 2001 earnings by 11 percent.”
-Jeffrey Immelt CEO of General Electric
September 2001