Transcript Competition and Market Structures

Competition and Market
Structures
Chapter 7 Section 1
Market Structure

: the nature and degree of
competition among firms operating
in the same industry.
Influence Identical Advert- Entry ExamProducts? isment
over
price
ples
sellers
into
used?
(Market
market
Power)
# of
Perfect
Comp.
Monopolistic
Comp.
Oligopoly
Monopoly
Oligopoly continued

Act interdependently
*Collusion: a formal agreement to act
together
 *Price-fixing: agreement to charge the same
price for a product
 Price wars: when one company lowers their
price, others will lower theirs and the next
firm will lower theirs, etc.


*illegal but hard to prove
Monopoly


One seller of a product
Not many in the US
--Cable & local phone companies are the closest
4 Types of Monopolies:
1. Natural Monopoly

Costs of production are minimized by having
one firm



Home phone companies—each company would
need their own wires and poles
Water or gas companies—each would need their
own pipes
Gov’t gives these companies a franchise but will
regulate price if necessary
2. Geographic Monopoly

Based on the absence of other sellers in a
certain geographic area
One drug store in a town
 One gas station for the next 200 miles

3. Technological Monopoly


Gov’t can grant a patent—an exclusive
right to produce, use or sell any new
invention for 20 years
Copyright—art and literary works for a
lifetime plus 50 years
4. Government Monopoly

Owned and operated by the gov’t

Examples:


Water
Weapons of mass destruction