Transcript ECON-3.5-8.12 Market Orgs 3-4stu

AGENDA Mon 3/5 & Tues 3/6
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QOD # 19: “Stupid is as stupid does.”
Review Quiz
Review HW
Taste Tests
Monopolistic Competition
Oligopoly
“Luke, I am your father!”
HW: pg 189 #1-5; pg 195 #1-5
– Study for Market Org Quiz
– Stock Market Company Analysis Summary Sheets & Printout #1
QOD #19: “Stupid is as stupid does.”
As you watch the clip from “Forest Gump,” note the process
related to Bubba Gump Shrimp’s position in the
shrimping market.
1. Before the hurricane, how does the shrimping industry
resemble a perfectly competitive market?
2. How does the hurricane change the market price and
quantity of shrimp? (Use supply & demand graphs to
illustrate.)
3. How did the hurricane create a monopoly for Bubba
Gump Shrimp? Use the characteristics of a monopoly to
support your answer.
4. Do you think Forest can maintain his monopoly status
over time? (In other words, are there barriers to entry?)
Explain.
Taste Tests
• Your task is to analyze each of the products to
determine which is the brand name item.
– In your team, SHARE some of each of the crackers (A & B)
– Also, examine the plastic sandwich bags (A & B).
– Finally, examine each of the paper towels (A & B).
• Consider texture, color, and taste.
• Last, select which of the two products (A or B)
would be the higher priced item.
Results of Price Check
Product A
Product B
Monopolistic Competition
The Characteristics of Monopolistic Competition
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there are many buyers and many sellers
firms produce and sell slightly differentiated products
there is easy entry into and exit from the market
Price searchers
sell slightly different products
produce Q when MR = MC
sell at the highest price at which they can sell all of their output
How are Monopolistic Competitor’s
products different?
• the product itself may actually or appear to be
different in some way
– Differ by location, service or perceived quality
• Location: gas station / convenience
• Service: Nordstrom / Supercuts
• Perceived quality: Hamburgers / Clothing
Competitors and Monopoly
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Many businesses would like to become a
monopoly
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they advertise perceived differences
Competition depends on two factors:
1. How close to unique the product is
2. How easy it is for sellers to enter the market
AGENDA Wed 3/7 & Thurs 3/8
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Review HW (pg 189 #1-5; pg 195 #1-5)
Oligopoly
“Luke, I am your father!”
HW:; pg 198 #1-15 RQ
– Study for Market Org Quiz
– Stock Market Watch
Sec 4 - Oligopoly
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The Characteristics of an Oligopoly
1. there are few sellers
2. firms produce and sell either identical or slightly
differentiated products
3. there are significant barriers to entry into the market
4. oligopolies are price searchers
– face intense competition from current sellers
– barriers prevent competition from new sellers
Identifying Oligopoly Industries
• Economist determine whether a market is an oligopoly by looking at
the percentage of sales accounted for by the top four firms in the
industry
– 6 major film studios = 90% of revenue
• 20th century, Warner Brothers, Paramount, Columbia, Universal, Walt Disney
• Dreamworks (Viacom bought—owned by Paramount)
– 2008 became independent again but distributed by Disney
• Leading Indies: Lionsgate, Summit Entertainment, MGM (former Biggie!)
– 4 music companies = 80% of revenue
• Sony, EMI, Universal, Warner
– 6 book publishers
– 3 television networks (1950-1970)
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ABC/Disney
CBS
NBC Universal
2 added since
– Time Warner
– News Corporation (FOX)
• Rule of 3 (markets often become an oligopoly of 3) Orwell’s 1984
– Food processors: Kraft, Nestle, PepsiCo
“Luke, I am your father.”
Cartels
• A cartel is a group of business that get together to
eliminate or reduce the competition they face from
each other.
• A cartel agreement is an agreement that coordinates
group activities to reduce competition and raise
profits
• cartels are weak because there is a strong monetary
incentive to violate the agreement
– eg: OPEC
Who is in Competition?
• It may appear that buyers and sellers are in
competition with each other
• The real competition, however, is between sellers
for buyers
• The threat of competition from other sellers ends
with sellers aligning with buyers
– ex: brand devotion