What Markets Exist Mr. Wyatt

Perfect Competition It’s the simplest, purest form of the market structures. Lots of firms all producing basically the same product. There are four stipulations for being a perfectly competitive market. 1. Many buyers and sellers in the market 2. Sellers offer identical products ◦Commodity 3. Buyers and sellers are well informed 4. Sellers enter and exit the market freely. Barriers to entry into the market 1. Start-up costs 2. technology

Monopoly It occurs when barriers stop firms from entering the market leaving only one supplier It also supplies a unique product. (no substitutes) The problem with them is that they charge higher prices, thus there are less goods sold than in a market with more than one seller so the U.S. outlawed them.

Economics of Scale They are characteristics that cause a producer’s average cost to drop as production rises Aids in off-setting start-up costs ◦Should the industry have limited “Economics of Scale” then it will hit a certain point and costs will begin to rise again In certain markets where bigger is better it can easily lead to a Natural Monopoly

Natural Monopoly It occurs when a market runs best with one large firm providing all of the supply. Ex. Water, sewer With competition, the competing firms will lower costs below market cost, using more resources for the same thing, & decreasing the amount sold. On occasion a N.M. can be destroyed by new tech that allows small firms to be as efficient as the large ones Telephones, and possibility electricity

Government Monopoly Simply a monopoly created by government (entity) intervention and regulation Ex. Domestic Uranium, gold, silver mining, NHL Patents Franchise License

Issues with Monopolies Market Power Price Discrimination Targeted discount (Student Rate) For P.D to work, there are three conditions that must be met 1. MUST have some market power 2. Must have distinct groups of customers 3. The buyer must NOT be in a position to easily resell the good or service.

Monopolistic Competition Many firms selling a similar product to each other, but not the same product. Ex. Jeep Wrangler – only Jeep makes the Wrangler (monopoly), but you can buy other SUVs competitively. Four conditions for M.C. 1. Many firms 2. Few barriers to entry 3. Little control over price 4. Differentiated products  Non price competition ◦ Physical Characteristics ◦ Locations ◦ Service level ◦ Advertising image or status

Oligopolies and Cartels Oligopolies happens when a market is dominated by a few large profitable firms. Top four firms produce 70% or more market output. Formed when severe barriers prevent new firms from entering the market The govt. concerns itself with three particular features. 1. Price Leadership – when a firm changes prices, production, etc., and the other firms agree to go along with it. 2. Collusion – illegally set price and production levels 3. CARTEL – an organization of producers that coordinate prices and production (OPEC, or the Drug Cartel in Northern Mexico)

Why the Government Regulates Remember Market power? Firms want to increase it by any means necessary They do so by forming cartels, merge with each other, or set market pricing below cost to drive competitors out of business (called predatory pricing!!!) and trusts

How The Government Regulates Creating Competition laws (aka in this country as antitrust laws) Regulates business practices Breaks trusts Breaks monopolies Blocking mergers

Why we regulate? Opponents argue that regulation created inefficient economies so some industries were deregulated. Results were mixed Should we regulate?