1. Market Structures chapter 7 review

2. Market Structures Divide paper into 4 parts On the front side label each section with one following: 1. Perfect Competition 2. Monopolistic Competition 3. Oligopoly 4. Pure Monopoly

3. Types of Monopolies On the back side label each section as: 1. Natural Monopoly 2. Geographic Monopoly 3. Technological Monopoly 4. Government Monopoly

4. Competition Laissez-Faire- Adam Smith’s economic theory that government should not interfere with commerce or trade Late 1800’s America’s industries were merging = less competition

5. Market Structure More competitive (fewer imperfections) Perfect Competition Pure Monopoly

6. Market Structure Less competitive (greater degree of imperfection) Perfect Competition Pure Monopoly

7. Market Structure Perfect Competition Pure Monopoly Monopolistic CompetitionOligopoly Monopoly The further right on the scale, the greater the degree of monopoly power exercised by the firm.

8. Perfect Competition Characteristics: – Large number of buyers/sellers – Products are homogenous (identical) – no need for brand names (salt) – Freedom of entry and exit into and out of the industry – have no control over the price – Each producer supplies a very small proportion of product – Consumers and producer are well informed

9. Monopolistic Competition Characteristics: - tries to make product a little different – Large number of firms in the industry – May have some element of control over price due to the fact that they are able to differentiate their product – Real/fake Product Differentiation – Entry and exit from the industry is relatively easy – few barriers to entry and exit

10. Monopolistic

11. Oligopoly – Price may be relatively stable across the industry – Behaviour of firms affected by what they believe their rivals might do – Goods could be homogenous or highly differentiated – Branding and brand loyalty may be a potent source of competitive advantage – High barriers to entry

12. Oligopoly Example: Music sales – The music industry has a 5-firm concentration ratio of 75%. Independents make up 25% of the market but there could be many thousands of firms that make up this ‘independents’ group. An oligopolistic market structure therefore may have many firms in the industry but it is dominated by a few large sellers. Market Share of the Music Industry 2002. Source IFPI: http://www.ifpi.org/site-content/press/20030909.htmlhttp://www.ifpi.org/site-content/press/20030909.html

13. Pure Monopoly Pure monopoly – where only one producer exists in the industry In reality, rarely exists – always some form of substitute available! Firms may be investigated for examples of monopoly power when market share exceeds 25% Sherman Anti-Trust Act

14. Types of Monopolies Natural- cost of production are minimized by having one firm control production. * water, gas, electric Geographic – based on the absence of other sellers based on a geographic area. Technological- based on control of a manufacturing method. Government- services and businesses provided only by the government