Miss DangMiss Dang
MARKET STRUCTURESMARKET STRUCTURES
Laissez-faire “allow them to do” Limited govt. intervention
Market structure – nature & degree of competition among firms doing business in the same industry
There are 4 types of market structure
PERFECT COMPETITIONPERFECT COMPETITION
EXAMPLE: Perfect CompetitionEXAMPLE: Perfect Competition
Agriculture
Farmer’s
Market
Why agriculture? Virtually identical
products Many, many
competitors Buyers won’t shop
with you if your prices are too high
[Somewhat] easy to become a farmer
Not very profitable
IMPERFECT COMPETITIONIMPERFECT COMPETITION Monopolistic competition, oligopoly, and
monopoly
Most firms/industries in U.S. fall into one of these categories.
Results: less competition, higher prices for consumers, and fewer products offered. (That is
why perfectly competitive markets are theoretically ideal situations.)
MONOPOLISTIC MONOPOLISTIC COMPETITION COMPETITION
Many competitors Similar products
BUT Each seller has a UNIQUE difference in their product (product differentiation).
They use NONPRICE COMPETITION to show UNIQUENESS.
It’s easy to enter the industry Must determine the UNIQUE difference
buyers want Sellers have very little control over prices
Can charge a slightly higher price for a good/unique product
Sellers somewhat make profits
EXAMPES: Monopolistic EXAMPES: Monopolistic CompetitionCompetition
Cell phone companies SIMILARITY: turn on, dial,
make call/text, communicate Many to pick from
Sprint AT&T Boost Verizon Amp T-Mobile
Unique differences: Calling plans Phones carried
Sellers lure (attract) customers with unique differences
Airlines SIMILARITY: take-off, fly
safely, arrive at destination Many to pick from:
United, Delta, Continental
British Airways, Virgin, Lufthansa, AiItalia, Air Swiss, Lan Chile, AeroFlat, etc
JetBlue, Southwest, Alaska, TACA, Northwest
Unique differences Where they go Amenities
Sellers attract customers with unique differences
Few, 3 or 4, major competitors Similar products, but clearly
differentiated between sellers BRAND NAME IS IMPORTANT
It is difficult to become a competitor Seller must take large portion
of customers from other sellers
Strong competition between sellers over prices Collusion is created to fix prices
If successful, can be very profitable
EXAMPLES: OligopolyEXAMPLES: Oligopoly
Automobiles by country of manufacture USA: Ford, GM, Dodge-
Chrysler Japan: Toyota, Honda,
Nissan Italy: Ferrari,
Lamborghini, Masserati Germany: Mercedes,
BMW, Audi, Porsche
Breakfast cereals 3 or 4 major
manufacturers (Kellogg’s, General Mills, Post, Quaker)
MONOPOLYMONOPOLY
ONE competitor Unique product – no other like it Very difficult to become a
competitor Would need to steal HALF the
buyers Seller has total control over
prices No equilibrium price
EXAMPLES: MonopolyEXAMPLES: Monopoly
Illegal
In some cases, the gov’t. believes it is in the best interest of the consumer to have a LEGAL monopoly and no competition between firms Examples:
Public transportation Electric power Water/trash utilities
Types of MonopolyTypes of Monopoly
Natural monopoly – costs of production minimized because a single firm produces the product. (Utility companies)
Geographic monopoly – 1 firm monopolize in 1 area.
Technological Monopoly – ownership/control of a manufacturing method, process, or other scientific advance
Government monopoly – owned and operated by govt.
MARKET STRUCTURE STORYBOARDMARKET STRUCTURE STORYBOARD
IN GROUPS OF 3 or 4, YOU WILL CREATE STORYBOARDS FOR ALL 4 MARKET STRUCTURES WE JUST COVERED.
USING YOUR TEXTBOOK P.169-177 (&NOTES), YOU WILL INCLUDE THE FOLLOWING ON YOUR STORYBOARD: TITLE OF MARKET STRUCTURE DESCRIPTION IMAGE EXAMPLES HOW DOES YOUR MARKET STRUCTURE
MAXIMIZE PROFITS? READING CHECK QUESTION (Write out question)
MARKET STRUCTURE STORYBOARDMARKET STRUCTURE STORYBOARD
WRITE OUT THE READING CHECK QUESTION & ANSWER IT
PG. 169-177
40 points (10 pts for each market structure)