Microeconomics and Market Structures Chapter 7 – Market Structures

Perfect Competition Monopolistic Competition Monopoly Oligopoly 4 Types of Market Structures

Perfect Competition A large number of firms all producing the exact same goods… Production is small Does not influence prices Ex. Tomatoes or Milk

Many buyers and sellers Identical Products Commodity-Same product regardless of who makes or sells Milk, Notebook Paper, Water, Gasoline Informed Buyers and Sellers Buyers are looking for the best deal Free Market Entry and Exit Markets w/more firms (comp) have lower prices 4 Conditions for Perfect Competition

Barriers Start-Up Costs Technology Efficient Market Lowest prices possible Will just cover costs Barriers to Entry & Costs Price

Monopoly A market dominated by a single seller Ex. The De Beers Corporation, Microsoft

One company owns all of the diamond mines in South Africa?

A market that runs most efficiently when one large firm supplies all of the output. Example: Water Technology and change can change natural monopolies. Ex: Phone companies Natural Monopolies

A monopoly created by the government Patents guarantee that companies can profit from their own research without competition. Franchise-the right to sell a good or service within an exclusive market. Ex: School Cafeteria Government Monopolies

Government allows companies in an industry to restrict the number of firms in the market MLB Industrial Organizations

Strategies Economies of Scale – Average costs drop as production rises. Price Discrimination – Division of customers based on how much they will pay. Discounted Airfare Manufacture’s rebates Senior Citizen or Student Discounts

Laws that encourage competition in the marketplace Anti-Trust Laws

1901-Sherman Anti-Trust Laws which outlaws mergers and monopolies that restrain trade between states 1911-John D. Rockefellers Standard Oil Trust 1974-Department of Justice sued to end AT&T’s monopoly 1982-AT&T breaks ups 1999-Microsoft is a monopoly 2011-AT&T is sued by Justice department History of Anti-Trust

The removal of some government controls over a market Deregulation

Selling a product below cost to drive competitors out of the market Trust-illegal grouping of companies that discourages competition Predatory Pricing

Monopolistic Competition Many companies sell products that are similar but not identical Many companies sell products that are similar but not identical Ex. Abercrombie & Fitch and American Eagle Ex. Abercrombie & Fitch and American Eagle

Many Firms Few Artificial Barriers to entry Slight control over price Differentiated Products 4 Conditions of Monopolistic Comp.

Non-Price Competition Competition through ways other than lowering price. Physical Characteristics Location Service Level Advertising, Image, Status

Oligopoly A few large firms dominate a market. Home Appliances Maytag, Bosch, LG Airline Companies Southwest Airlines, United, American Airlines Cereal Companies Post, Kellogg's, General Mills

Strategies Collusion- an agreement among firms to divide the market, set prices and limit production. Price Fixing – An agreement among firms to charge one price for the same goods. Cartel – A formal organization that coordinates price and production.

Chapter Seven Market Structure Perfect CompMonopolistic CompOligopolyMonopoly # Firms Variety of Goods Control over Price Barriers Examples