1. Market Structures

2. California Standard  12.2 Students analyze the elements of America's market economy in a global setting.  7. Analyze how domestic and international competition in a market economy affects goods and services produced and the quality, quantity, and price of those products.

3. What is an industry or market?  List 8 different industries/markets

4. We categorize industries/markets by how many competitors exist in that market/industry

5. Pure/Perfect Competition Pure Monopoly Monopolistic Competition Oligopoly FOUR MARKET STRUCTURES  More Competitors Less  Competitors

6. How does Competition affect the consumer? Explain

7. 3 Characteristics of Perfect Competition

8. 1) Many buyers and sellers act independently  No single buyer or seller in a market has enough power to control demand, supply, or prices.

9. 2) Sellers offer identical products  Buyers choose one product over another primarily on price, not unique characteristics.

10. 3) Sellers can enter or exit the market easily  Sellers must be able to enter a profitable market—or leave an unprofitable one-easily. This ensures that a single seller cannot dominate a particular market. Few Barriers to Entry  Barriers to entry: factors that keep competition from entering a market/industry

11. Question  Relating to Barriers to Entry, what are 3 concerns that you would have if I came up to you to tell you that to become rich, I was going to start a Steel Producing Company?

12. Example of Perfect Competition AAgricultural Products 1) Thousands of independent farmers compete to sell their products to millions of buyers 2) For the most part, products are identical. 3) Farmers who already own land can switch to different products easily

13. Monopolistic Competition  Key difference from Perfect Competition: Sellers offer similar, rather than identical, products. Each firm seeks to have a monopoly-like power by selling a unique product - Product Variation

14. Product Variation  Product variation is more common than having identical products. Sellers try to differentiate, or point out differences (real or merely seem real), between their products and those of their competitors.  Sellers here, compete on a basis other than price. They compete through advertising and by emphasizing their brand names.

15. Think of an industry where there is Monopolistic Competition. List the different ways producers differentiate their products in this industry

17. 3 rd Market Structure: Oligopolies  A market structure in which a few large sellers control most of the production of a good or service

18. 3 Conditions of an Oligopoly 1) The critical characteristic of an Oligopoly is the presence of only a few large sellers A market is considered an oligopoly when the largest three or four sellers produce most (maybe 70% or more) of the market’s total output

19. Conditions of Oligopoly  2) Sellers offer identical or similar products

20. Conditions of an Oligopoly  3) Difficult Market Entry Significant Barriers to Entry- Examples? High Start-Up Costs, A lot of Technical Knowledge Needed, High Consumer Loyalty

21. List 3 industries that would qualify as oligopolies

22. Vocabulary: Collusion  When sellers secretly agree to set production levels or prices for their products Illegal and carries heavy penalties such as fines and even prison sentences

23. Vocabulary: Cartels  Where companies openly organize a system of price setting and market sharing Illegal in the US but not everywhere in the world Examples: Diamonds (De Beers) and Oil (OPEC)

24. Monopolies  Where a single seller controls all production of a good or service

25. Conditions of a Monopoly 1) A Single Seller 2) No Close Substitutes 3) Difficult Market Entry 4) Seller has a great deal of Price Control

26. Types of Monopolies  Natural Monopoly – Sometimes having competition in an industry can be inefficient and not in the public best interest. The government will sometimes grant or allow some companies a Natural Monopoly. Ex. Utility Companies – Enormously expensive, require construction, essential for the public. Regulated by the government

27. Types of Monopolies Cont’d  Technological Monopolies –  Patent: Grants a company or individual the exclusive right to produce, use, rent and sell an invention for 20 years  Why? To motivate ingenuity and creativity. To give incentive to invent products  Copyright: Protects the work of authors, musicians and artists

28. Expanding Business: Mergers  Horizontal Mergers Merging two companies within the same industry Examples: 1)American Airlines buying US Air 2) AT&T buying Cingular Wireless

29. Expanding Business: Mergers  Vertical Merger – Merger of two companies that are at different stages in the same production process Example: A merger between Sears and Maytag

30. Expanding Business: Mergers  Conglomerate Mergers Merger of two companies that are in different businesses Examples: General Electric: Jet Engines, NBC, Insurance, Financing; PepsiCo: Pepsi, Frito-Lay, KFC, Pizza Hut, Taco Bell

31. Conglomerate Merger Example  “I was chairman for two days, and then I had jets with my engines hit a building I insured, which was covered by a network I owned, and we are still growing 2001 earnings by 11 percent.” -Jeffrey Immelt CEO of General Electric September 2001