Transcript Unit 2 notes File

Market Structures
 List 5 different ways that
companies compete with each
other.
 Turn and talk
 Perfect Competition
 Monopolistic Competition
 Monopoly
 Oligopoly
 Fill in chart using book with partner
 A market structure in which a large number of firms all
produce the same product
 Production is small
 Does not influence prices
 Many buyers and sellers
 Identical Products
 Commodity-Same product regardless
of who makes or sells
 Milk, Notebook Paper, Water,
Gasoline
Pt. 1 & 2 20/20 “Over the Barrel”
 Informed Buyers and Sellers
 Buyers are looking for the best deal
 Free Market Entry and Exit
 Markets w/more firms (comp) have
lower prices
 List the four conditions of perfect
competition that we discussed
yesterday.
 Market structure in which many companies sell
products that are similar but not identical.
 Many Firms
 Few Artificial Barriers to entry
 Slight control over price
 Differentiated Products
 A market structure in which a few large firms
dominate a market
 Why would these companies set their prices
higher and produce less of their products?
 http://www.youtube.com/watch?v=JMq059SAQXM
 Examples: Four music companies control 80% of the market -
Universal Music Group, Sony Music Entertainment, Warner Music
Group and EMI Group
 Six major book publishers - Random House, Pearson, Hachette,
HarperCollins, Simon & Schuster and Holtzbrinck
 Four breakfast cereal manufacturers - Kellogg, General Mills, Post and
Quaker
 Two major producers in the beer industry - Anheuser-Busch and
MillerCoors
 If you decided that you wanted to start
a business, what types of factors would
be present that might prevent you from
being able to compete?
 Competing with Larger
Firms
 Typically work together
with other large firms
ILLEGAL
Problems
 Price War-lowers the
market price
 Collusion-agreement to
set prices and
production levels low
 Price Fixing-one price
for the same good
 Cartels-Organizations
that agree to coordinate
prices and production
 A market structure dominated by a single seller.
 What happens if:You have a rare disease and to cure
the disease you must take a new antibiotic to help cure
it, and without the antibiotic your future is terminal?
What if only one firm makes that antibiotic?
Problem w/monopolies—take advantage of their market
power and charge high prices
 With a group of no more than 3, classify the
firms/products on the list you were given under one of
the four market structures we have discussed. Include
the following information:
 1. Name of firm/product
 2. Type of market structure it falls
under
 3. Reasons that you believe the firm
exists in that market
 A market that runs most efficiently when one large
firm supplies all of the output. Example: Water
 -Technology and change can change natural
monopolies. Ex: Phone companies
Imagine that you and your friends plan to open a new
convenience store. Brainstorm a list of 5 expenses
that would be your start up costs.
 If a firm’s start-up costs are high, and its average costs
fall for each additional unit it produces, then this is
called an economies of scale. (Characteristics that
cause a producer’s average cost to drop as production
rises)
Barriers
Price
 Start-Up Costs
 Efficient Market
 Technology
 Lowest prices possible
 Will just cover costs
 What could be some other “barriers to entry” into a
market besides start up costs?
WHAT IS THE
GOAL OF THE
GAME OF
MONOPOLY?
 From what we watched yesterday,
list 3 reasons that you believe WalMart to be either good or bad for
our economy.
 Price Discrimination-division of customer into
groups based on how much they will pay for a good.
 Discounted Airfare
 Manufacture’s rebates
 Senior Citizen or Student Discounts
 However for price discrimination to work a market
must meet three conditions
 Some market power
 Distinct customer group
 Difficult resale
 Complete the subsearch using the following directions
 S: Skim-Scan-Survey
 U: Underline key points
 B: Bracket major passages and create notes in margin
 S: Place symbols within the text (Stars, asterisk,
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arrows,etc.
E: Enumerate lists, Series
A: Abbreviations
R: React Personally
C: Make Connections to your life
H: Highlight
P.S. : Summarize each section from text in 3-4
sentences.
 What is a Price War?
 List two ways that firms compete
without lowering prices
Non Price Comparison
 Phsyical Characteristics
 Location
 Service Level
 Advertising, image or
status
 A monopoly created by the government
 Gov can issue a patent.
 gives a company exclusive rights to sell a new good or
service for a specific period of time.
 Patents guarantee that companies can profit from
their own research without competition.
 Franchise-the right to sell a good or service within an
exclusive market. Ex: School Cafeteria, McDonalds,
Subway.
 Government allows companies in an industry to
restrict the number of firms in the market Ex: MLB,
NBA, NFL