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Clarifications 1. Stock Project 1 st period only- basic chart 2. Liability: legally bound obligation to pay debt— debts can ruin.

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Presentation on theme: "Clarifications 1. Stock Project 1 st period only- basic chart 2. Liability: legally bound obligation to pay debt— debts can ruin."— Presentation transcript:

1 Clarifications 1. Stock Project 1 st period only- basic chart 2. Liability: legally bound obligation to pay debt— debts can ruin a sole proprietorship's business—sell car to pay loan 3.2 nd period: pure competition—go over again

2 Market Structures

3  Price Leadership: 1 co. lowers price and others follow (Southwest Airlines)—exists in oligopolies  Price Collusion: companies get together set prices—hard to prove (ex: airline company and FBI tapes)  Price fixing: agreement among firms to sell at the same or similar prices—result of price collusion

4 Pure/Perfect Competition A large number of firms all producing (essentially) the same product Sell same product at the same price- identical product Farming, some agricultural produce, stock market No price setting power and no non-price competition 4 requirements: –Many buyers and sellers –Identical products –well informed about products –Sellers can enter and exit market freely

5 Imperfect Competition  Factors make it difficult for new firms to enter market = barriers to entry  Leads to imperfect competition

6 Product Differentiation  Emphasis on subtle differences between competing products  Profit from the differences  Features of package or product  Convenience  Aspirin or Bayer  Non-Price Competition (advertising):  Physical characteristics: new size, color, bottle shape  Location- where they are sold  Service Level: higher level of service  Advertising: create apparent differences

7 Monopolistic Competition  sell products that are similar but not identical- (Aisles at grocery store)  More difficult to enter market  Some price setting power (name brand loyalty)  Non-price competition exists  Sodas, grocery products, bottled H2O, dry cleaners, shampoo/conditioner, burger joints  4 requirements:  Many firms/sellers  Few artificial barriers  Slight control over price  Differentiated products

8 Monopoly  barriers prevent firms from entering market that has one single supplier  1 seller and any number of buyers (same price)  Unique product  Impossible to enter market  Total price setting power –ATT/ electricity co’s or utilities/ MUD districts/ Center Point energy/Bill Gates/cable

9 4 types of Monopolies  Technical: new technology develops  Natural: natural gas, electricity, MUD, Center Point, cable,  Government: created by government  Geographic: Location  Price discrimination: sell a product to groups of consumers for different prices

10 Oligopoly  3-5 firms dominate industry  Identical and different products  Very difficult to enter market—need lots of money  Prices are interdependent  Non-Price competition exists  Big 3 auto makers, Beer, cigarettes, sodas, cereal, TXU, Reliant, Direct electricity, Center Point, television service providers (ATT, direct)

11 Terms  Patent: government issues a patent to a company giving exclusive rights to sell a new good or service (for a specific period of time)  Price war: when competitors cut prices very low to win business—harmful to producers but good for consumers  Cartels: illegal in US– producers coordinate prices and production


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