Transcript Chapter 7.1 notes - Effingham County Schools

Chapter 7.1-4 notes
Competition and Market Structures
Market Structure
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nature and degree of competition
among firms operating in the same
industry.
Perfect Competition
5 necessary conditions:
1. large # of buyers and sellers
2. buyers and sellers deal in identical products
3. each buyer and seller acts independently
4. buyers and sellers are reasonably well-informed
about products and prices
5. buyers and sellers are free to enter into, conduct,
or get out of business.
• Each firm is too small to influence price; supply
and demand set price
• “price takers”
Examples of p.c.
• Nothing is “perfect”
• Closest – corn, ag products, raw beef, wheat
Imperfect Competition
• Lacks one of more of the 5 conditions
• Most firms and industries fall into I.C.
• There are 3 categories: monopolistic
competition, oligopoly, monopoly
Get a sheet of paper out
Monopolistic Competition
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has all the conditions of perfect competition
except for identical products
product differentiation – real or imagined
differences between competing products in the
same industry
nonprice competition – the use of advertising,
giveaways or other promotional campaigns to
convince buyers that the product is somehow
better than another brand
can enter the market easily; narrow price range
Examples of mon.comp.
• Fast food
• Jeans/department store clothes
Oligopoly
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market structure in which a few very large
sellers dominate the industry
industry is oligopoly if the top four firms control
40 percent of market
product can be differentiated or standardized
interdependent behavior – oligopolies are so
large that when one firm acts the other firms
usually follow
Very difficult to enter market
Examples of Oligopoly
• Tennis balls
• Cereal
• Soft drinks
Monopoly
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market structure with only one seller of a
particular product
monopolies are price makers instead of
price takers
Types of Legal Monopolies
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natural monopoly –the costs of production are
minimized by having a single firm produce the
product. EX: phone company, utilities
geographic monopoly – absence of other sellers
in a certain geographic area
technological monopoly –ownership or control
of a manufacturing method, process, or other
scientific advance Ex: patents, copyrights
government monopoly – owned and operated
by the gov’t, found at all 3 levels
Unfair business practices
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NO market allocation
NO predatory pricing
Govt’ can issue and cease and desist order
Gov’t requires public disclosure
Federal Agencies/Regulation
• FDA – Food and Drug Admin.
• FTC – Federal Trade Comm.
• FCC – Federal Communications
Commission
• EPA – Environmental Protection Agency
• CPSC – Consumer Product Safety
Commission
Deregulation
• In 1970’s, gov’t started to deregulate some
industries
• Example – Airlines
• Prices fell because of competition, but
quality of service also fell, and some
airlines went bankrupt
Word bank Ch. 7 quiz tom.
Perfect competition
Monopoly
Monopolistic competition
Oligopoly
Imperfect competition
Barrier to entry
Natural monopoly
Technological monopoly
Gov’t monopoly
Geographic monopoly
Non price competition
Product differentiation
Antitrust legislation
Public disclosure
Market allocation