2. Market Structures The nature and degree of competition between firms operating in the same industry.

3. Perfect Competition Or Pure Competition

4. Characteristics of Perfect Competition A large number of buyers and sellers (Individual firms have no influence over price). Firms can easily go into and get out of business (low barriers). Firms are selling identical products (Buyers won’t care who they buy from so individual firms have no influence over price). Buyers and sellers are knowledgeable about the product’s price ( A change in price will immediately change the amounts demanded and supplied for a firm).

5. Examples of Perfect Competition –Commodities Natural gas, oil or coal Agricultural products –Grains –Produce –Livestock

6. Monopoly

7. Characteristics of Monopolies There is only one seller of the product There has to be extreme barriers to entry There are no close substitutes

8. Characteristics of Monopolies The quantity available will be lower and the price will be higher than in a competitive market. –But the monopolist must take the Law of Demand into account. Prices up Demand down

9. BARRIERS TO ENTRY Develop economies of scale Obtain a natural monopoly. Obtain a patent on your product. Obtain a government franchise or license Boeing Aircraft Factory

10. Barriers to Entry Government owned business Use non-competitive practices (threats/ bribes).

11. Barriers to Entry Limited demand. Control all natural resources needed to make the product.

12. Examples of Monopolies Water Companies –Each neighborhood has only one water company serving it because it is more cost effective (Natural Monopoly) National sports leagues –The Dallas Cowboys and the Texas Rangers never have to worry about competition because they have a franchise Pharmaceuticals –When a company develops a new drug it is granted a patent for exclusive production for up to 20 years.

13. Monopolistic Competition A market structure in which many firms sell products that are SIMILAR but NOT IDENTICAL

14. Characteristics of Monopolistic Competition Large number of buyers and sellers Most firms are small It is easy to get into and out of this industry (Start-up costs are low). Similar, not identical, product (Substitutable goods between firms are differentiated). Firms can raise prices (You can charge a higher price for a differentiated product).

15. Non-Price Competition Or Product Differentiation Firms may: Make their product with an extra or new feature Advertise heavily for name or product recognition Choose a special location Provide a higher level of service

16. Examples of Monopolistic Competition Restaurants Clothing stores Gas stations Grocery stores Hairdressers

17. Oligopoly A market structure in which a few large firms dominate

18. Characterisitics of Oligopoly: A few very large firms dominate this industry There are many barriers to entry –Cost advantages (large start-up costs or economies of scale) –Legal barriers (patents & licenses) –Non-price competition (advertising) –Illegal barriers (collusion, price fixing, cartels) Pricing decisions by one firm affect all other firms (price leadership) Price wars common

19. Examples of Oligopoly Airlines Cereal companies Soft drink companies Automobile manufacturers

20. Government gives a company the exclusive right to provide goods or services within an area because the costs to consumers are lowered by having a single firm provide them (ex. City water). Four Types of Monopolies : Natural

21. Geographic Monopolies There are no other businesses in the immediate area to offer any competition due to low demand or extreme isolation (ex. Walmart in L.C.).

22. Technological Monopolies A firm or industry has created a new product or process and obtains a patent or copyright.(ex. Polaroid or pharmaceutical firms)

23. Government Monopolies A government owned business that provides a product or service that private firms do not adequately provide (ex. US Post Office or Amtrak).

24. REGULATION & DEREGULATION Antitrust laws are laws that encourage competition in the marketplace. The government uses antitrust laws to regulate markets dominated by one or a few firms, to breakup monopolies, and to block mergers that can hurt competition.

25. The government tries to promote competition and the greater choice that may accompany it. The government sometimes deregulates industries to promote competition.